As recently as a few years ago, it wasn’t uncommon to find vehicle inventories completely out of whack with consumer demand. For the most part, automakers left the business in cruise control, relying on fleet sales and heavy incentives to clear up excess inventories – a recipe for disaster in today’s economic climate.
But thanks to some radical changes in business practices, automakers have prevented inventories from ballooning to alarming levels, despite some of the worst auto sales figures in nearly two decades.
According to Automotive News, the industry’s stock of unsold vehicles in the U.S. on October 1st totaled 2.9 million units – nearly 300,000 units less than the 10-year average. The industry’s daily inventory for October 1st was a 72-day supply, marking an 11 day increase over September 1st, but still a very good number considering the sales collapse during the month of September.
The automakers have helped keep inventories low by reacting quickly to changing market conditions. It doesn’t seem like anything is off limits anymore, with automakers not hesitating to move production, cut shifts or even close plants as demand drops off. This year alone, North American manufactures will cut production by 1.5 million vehicles. The new way of thinking may not be viewed as being employee friendly, but it’s what the automakers need to implement in order to stay afloat.
Although most automakers don’t rely on incentives as heavily as they used to, incentives still play a role in clearing excess inventory. Heavy incentives earlier this year helped move out larger trucks and SUVs, while smaller incentives are helping small and mid-sizes cars keep their momentum through the economic downturn.
But perhaps the most positive result of inventory control in the amount of capital it frees up. Automakers are able to shift dollars usually tied up in large inventories to other facets of the company, such as paying down debt or research and development. “Cutting inventory makes more capital available for the needs of the corporation,” Mike Robinet, head of forecasting for CSM Worldwide, told Automotive News. “It’s capital that can be spent on product development.”
10/20, 12:51 PM
posted by:
A4
bloated inventories are a recipe for disaster so thank god for this eh
10/20, 1:24 PM
posted by:
johnnycanuck
I wonder how many Harvard economics and Princeton grads were consulted to formulate this brilliant example of financial and accounting wizardry. Then again I suppose there has to be more to it than looking out the dealership window and when you see the lot is full you stop bringing in inventory. Has to be… right?
10/20, 4:34 PM
posted by:
Payton Byrd
This is a real reflection of the fact that the big 3 are starting the break the strangle-hold that the UAW has had on the industry for decades. In the past the big 3 felt that it was best to just keep the UAW workers busy as to avoid the threat of strikes. Now, they are basically begging the UAW to strike so they can just close down the plants. Now, the UAW has no leverage and the industry actually gets to operate on capitalistic principles instead of the communistic principles of the UAW.
10/21, 10:15 AM
posted by:
BMW M1
its time to say thank you to Toyota for all its Lean Management philosophies