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EE_
12th February 2014, 08:17 PM
Channel-Stuffed US Car Dealers Cut Prices; Hope To "Sell Their Way Out Of This"
Submitted by Tyler Durden on 02/12/2014 17:20 -0500

While loathed to admit it, US auto makers have done it again. As we have vociferously explained month after month (and has been vocally denied until now by the car makers themselves), much of the recovery in auto sales has been a massive channel-stuffing make-work program (mal-investment once again triggered by 'false' signals created by Fed intervention). Now, as the WSJ reports, Detroit's big 3 are trying to sweeten discounts to clear a massive inventory of unsold vehicles from dealer lots (desparate not to start a profit-killing price war). "We believe we can sell our way out," said GM, but as Morgan Stanley warns, "the best of the U.S. auto replacement cycle is over." Good luck...

As we noted recently,

Confused why the various US manufacturing indices have been on a tear in the past few months? Perhaps the fact that GM dealer lots are so full of cars they just couldn't wait for even more deliveries has something to do with it. Which is also why in addition to reporting sales numbers for November that were largely in line with expectations, amounting to 212,060 (even if total Chevy Volts sold YTD of 20.7K were -0.6% less than in the same period in 2012), or 13.7% more than last year (estimated called for 13.% increase), of which a whopping 51,705 was in the form of "channel stuffed" units to be parked on dealer lots.

In fact, as the chart below shows, in the past three months, GM channel stuffing has exploded and soared by 150K units (the most ever for a 3 month period) from 628.6K to 779.5K. This represents the second highest amount of channel stuffing and is lower only compared to the 788.2K units "stuffed" exactly one year ago.

And now via WSJ,

Detroit's big auto makers are trying to sweeten discounts to clear unsold vehicles from dealer lots, but not so much to start a profit-killing price war.

It is a balancing act making Wall Street investors nervous. Analysts aren't sure whether the moves to counter a January slowdown in sales—particularly new discounts on large pickup trucks—will undermine the rising prices that have helped rebuild profits during the past three years.

On Tuesday, automotive sales tracking firm ALG Inc. warned industry inventory levels in January were the highest since August 2009, when the recession was in full force. It took U.S. dealers in January an average of 59 days to sell a new vehicle, nine days longer than the same period a year earlier and the highest level since the 68-day peak in 2009.

None of the auto makers say they plan to reduce production to counter the inventory overhang. Paring output would reduce pressure to discount, but auto maker's book revenue when they ship vehicles to dealers and any slowdown would hit first-quarter revenue.

But the Car makers still believe in miracles...

They are counting on dealers to cut the backlog—without a wholesale change in manufacturers' incentives or production schedules.

"We believe we can sell our way out," said GM spokesman Jim Cain.

But this is not going to end well...

GM and other car makers figure "it is cheaper to offer these incentives than to shut the plants. The problem is once you turn it on, [discounting] it is hard to turn it off, and now we are looking at another challenging month with February."

But there are signs that the pain threshold has been crossed in some models.

After four years of rapid growth, the U.S. new-car sales pace "appears to have stalled," Morgan Stanley analyst Adam Jonas said in a research note earlier this week. "We really think the best of the U.S. auto replacement cycle is over. The incremental buyer is moving from someone who needs to replace their car to one who just wants to."

Dealers are not as confident...

"With inventory levels reaching a point not seen since August 2009 and extreme weather not letting up, we fully expect a short term rise in incentives," said Eric Lyman, an ALG vice president in Santa Barbara, Calif. "The danger is that this turns into an escalating arms race for market share," Mr. Lyman said.

It would seem, once again, that we never learn...

http://www.zerohedge.com/news/2014-02-12/channel-stuffed-us-car-dealers-cut-prices-hope-sell-their-way-out

mick silver
13th February 2014, 05:17 AM
just if we builded more car plants i think that we could sell are way out of this . thats how they could fix this with new car plants so they could build more cars . this is how the ceo think now ...;D thats what fords doing in my state

collector
13th February 2014, 05:37 AM
Maybe Obama could ban ownership of cars over 4 years old and that'll help stimulate new car purchasing and the economy - a win - win

gunDriller
13th February 2014, 06:54 AM
i paid $14K for a full size Ford truck in 1998.

recently i've been thinking Diesel. but i don't think i can get a new Duramax or a Dodge/Cummins or a Power Stroke for $14K.

when I bought the Ford, I declined all the BVLLSHIT they try to sell you. kept the price low. while we were standing around, the salesman 'confided' (?) in me that the dealership made $100 on the sale, $50 of which went to the salesman as commission.

Ares
13th February 2014, 07:01 AM
Well if the fed.gov can mandate you buying a health care product, what's to stop them from forcing you to purchase 2-3 cars or face getting fined, err I mean "taxed"? The supreme court will rubber stamp it, and claim it's your "right" to have transportation provided by the government.

Horn
13th February 2014, 07:07 AM
They will just start converting surplus stock into armored police vehicles, and sending to Iraq along with certain parts of U.S.

ximmy
13th February 2014, 05:48 PM
What kind of new car should I buy? http://cdn.backyardchickens.com/a/ac/ac9770fa_900x600px-LL-71fb621e_jill61-603505-albums-emoticons-pic59015-rubbing-hands-smiley.gif

Ponce
13th February 2014, 06:49 PM
Sorry to say that the US auto industry will go down the drain......while people have no money the keep on making more expensive cars instead of coming up with a "peoples" car for under ten grand........is time to stop making cars with build in toys and start making workable cars, cars that the average John Doe can work on and seldom breaks down a la Japanese style.

V

ximmy
13th February 2014, 07:06 PM
Canada is working on it...

2014 Nissan Micra is cheapest new car in Canada, prices start at $9,998

http://ca.autoblog.com/2014/02/13/cheapest-car-in-canada-2014-nissan-micra-price-toronto-auto-show-debut/