Car Makers Have Record Backlog of Autos - A Good Time To Negotiate

DETROIT May 14, 2003; John Porrettowriting for the AP reported that sluggish sales to start this year have left automakers with record levels of new cars and trucks, but observers say a pickup in business is brewing that will ease the glut.

While automakers typically like to have a supply of vehicles for about 65 days, some companies, including General Motors Corp. and Ford Motor Co., are carrying inventories that extend beyond 80 days.

Even Asian automakers like Toyota, who usually keep inventories low, are at higher levels than normal.

Large inventories are a concern because they can lead to production cuts, which directly affect automakers' bottom lines.

However, beefed up incentives, rising consumer confidence and the diminishing effects of the U.S.-led war with Iraq are expected to boost sales to a seasonally adjusted annual rate of 16.6 million units in May, up from 16.4 million in April, 16.2 million in March and 15.5 million in February, according to a forecast from Ward's Automotive Reports.

"The cars are out there, but I think they'll get sold because there's some catch up in the system and consumer confidence is improving," said Paul Taylor, chief economist for the National Automobile Dealers Association.

GM, the world's largest automaker, has an inventory of 1.25 million new cars and trucks -- enough to fill orders for 82 days.

Spokeswoman Deborah Silverman said the level is about 50,000 more than it was last month. "But it's a manageable level, particularly going into the spring selling season," she said.

GM previously announced a 10.5 percent production cut for the second quarter.

Ford's inventory is at about the 86-day level. One reason is a buildup of the F-Series pickup, Ford's best-selling model. Ford will have to cease production at plants in Norfolk, Va., and Kansas City, Mo., in the coming months as it prepares to launch an all-new F-Series lineup.

In March, the world's second-largest automaker announced a 16.6 percent production cut for the April-June period.

George Pipas, Ford's top sales analyst, said the industry's extra capacity at present likely could support a year-end sales level of 17 million vehicles -- at the high end of most forecasts to start the year. Last year's tally of new car and truck sales was 16.8 million.

"The problem is, we haven't seen anything in any month this year that equates to a 17 million sales year," Pipas said.