Detroit’s Big 3 Automakers Keep Lid on Production to Drive Higher Profits

After decades of building more vehicles than the market could support, Detroit’s Big 3 automakers are keeping their inventories lean – a little too lean to suit some dealers.

Galpin Ford vice president Beau Boeckmann said he ordered 100 Fusion sedans for his Los Angeles dealership last month. So far, he’s only received seven.

And it’s not just Fusions that are in short supply. Boeckmann said, “I am begging for inventory across the board. I couldn’t sleep a year ago because I thought, ‘We have a year’s supply of these cars!’ And now I’m worried about our inventory again because we don’t have enough.”

Ford dealers aren’t the only ones feeling frustrated by inventory shortages. Chrysler Group and General Motors dealers are also anxious. Scaled back production allows the automakers to preserve their per-vehicle profit margins, which is music to investors’ ears. However dealers worry that the low inventories will prevent them from increasing their sales to the levels they enjoyed before the recession took hold.

Gordon Stewart said GM isn’t making enough Equinoxes to meet the demand at his Florida, Georgia and Michigan Chevrolet dealerships. He said his request for more inventory “mean nothing.” “They appreciate the requests,” he said, “but it does nothing for what they can produce.”

GM spokesman Tom Henderson said the automaker is trying to keep up with demand but doesn’t want to risk overproducing models that then have to be discounted in order to generate sales.

Henderson said, “We’re working awfully hard to provide the additional capacity to meet that demand but we don’t want to go back to the days where we had overcapacity and had to use a lot of incentives.”

Last week GM announced that it will increase its output of the popular Equinox mid-sized SUV.

Last year GM reduced production by 44%, while Chrysler Group slashed its output by half and Ford lowered production by 16%. Ford’s inventory was at 349,100 units at the end of last month. That’s a 30% reduction compared with two years ago. GM said its inventory shrunk by 43% to 424,000 units and Chrysler reported 191,000 vehicles in its inventory – a reduction of 53%.

Ford had 349,100 vehicles in supply at the end of July, 30% less than two years earlier, while GM’s inventory dropped 43% to 424,000 and Chrysler’s declined 53% to 191,000, according to the companies.

J.D. Power & Associates executive director of forecasting Jeff Schuster said the reductions in inventory have resulted in higher prices and less selection for consumers. “Buyers have always been able to find 10 versions of the same vehicle they want. Now we’re in an environment that they’re probably not going to get the exact one they want and they’re going to pay more because the incentives aren’t there.”

Schuster also said that, although automakers are able to get top dollar because of the scarcity of models, lower inventories have contributed to lower-than-predicted sales in recent months. Last month, U.S. vehicle deliveries were at an annualized rate of 11.5 million units compared with the 11.9 million units predicted by Bloomberg based on average estimates provided by eight industry analysts.

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