Lower Inventories Not Necessarily a Bad Thing for New Car Dealers

The success of the Cash for Clunkers program has left automakers with their lowest inventory levels in nearly 30 years. As a result, factories are reopening and autoworkers are being recalled in order to fill the demand.

Dave Beach is a 47-year-old worker at Ford Motor Company’s Wayne Assembly Plant. He says, “Everybody has gone from being down in the doldrums to being upbeat and happy.” The Wayne Assembly Plant produces the Ford Focus which was one of the most popular vehicles among Cash for Clunkers buyers.

Although the current shortage of new vehicles is good news for automakers and dealers, it’s bad news for new car buyers. According to Jessica Caldwell, an auto industry analyst, consumers are finding fewer incentives, and some vehicles are still hard to find. She says, “Depending on which vehicle you are looking at, it could be slim pickings.”

WardsAuto.com, a provider of auto industry intelligence, places new car and truck inventories at their lowest levels since 1975. According to their data, new vehicle inventory on dealer lots or in transit from factories by the end of August had dropped to 1.4 million vehicles. WardsAuto.com places that figure at just 49% of August 2008 numbers.

WardsAuto.com editorial director David Zoia says, “On the positive side, we just came through cash for clunkers, so this is happening at a time when we should see a more-relaxed demand,”

On average, automakers’ “days to turn”, which is the time required for a vehicle to sell once it reaches the dealer, was estimated at 72 days at the end of last month. That’s the lowest since last September when the nation’s economy began its precipitous decline. The ideal, according to most experts, is 60 days.

Cash for Clunkers breathed life back into the auto industry as a whole.

IAC Group supplies parts to Ford’s Wayne Assembly Plant. Ed Norris is an IAC Group employee who monitors incoming automotive parts used in the Ford Focus. He has nothing but good things to say about the Cash for Clunkers program. “It helped Ford, it helped the supply base, it helped everybody,” he says.

General Motors Company spokesman John McDonald says that the temporary shortage in inventories is good for the industry. “It’s a good thing for pricing,” he says, “Because you don’t have to put excess inventory on sale with incentives.”

The shortfall has also come during a traditionally slow time for auto sales; after the summer selling season and before new model arrivals in dealer showrooms.

Bill Golling is among the Chrysler dealers who survived the recent cuts made by the automaker as part of its restructuring agreement. Inventory at his dealership is less than half its normal level. Golling said, “We are somewhat limited on colors and even some models, but that is getting fixed.”

Some dealers are finding a good use for the extra space created by the inventory shortages. They’re using it to temporarily store disabled Cash for Clunkers trade-ins destined for the scrap yard.

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