Surplus of Large Pickup Trucks Causes Concern for GM, Other Automakers

The glut of large pickup trucks languishing on dealer lots is causing some analysts to warn of price wars and lower yearly profits for General Motors Company and others. At the end of June, GM had a 122-day supply of GMC Sierra and Chevrolet Silverado full-size pickups; about double the industry-wide 99-days supply.

Pickup truck sales have contributed heavily to the 13 percent increase in car and light truck sales during the first six months of the year. Sales of Chevrolet Silverado and Ford F Series pickups rose by 10 percent while sales of the GMC Sierra have risen 22 percent. Demand for Chrysler’s Ram pickups soared 32 percent during the first half of the year. But many analysts now fear that a weakening economy could lead to lower truck sales during the second half of the year.

Slower pickup sales could lead to more generous incentives and eat into corporate profits for a number of domestic and foreign automakers.

Sales of Toyota Tundra pickups have fallen 12 percent this year, in part due to production disruptions caused by the March 11 earthquake and tsunami. Toyota is offering average incentives of $2,654 on the Tundra. Ford has also kept a lid on incentives; offering buyers an average $3,750 on its F Series pickups. GM, however, is offering average incentives of $4,880 on the Chevrolet Silverado, and $5,350 on the GMC Sierra.

Analyst Joseph Amturo, of Buckingham Research predicts GM will increase incentives by around $700 per transaction on full-size pickups in the third quarter. He also expects to see the company cut production of full-size trucks by 65,000 compared to last quarter.

IHS Automotive analyst Tracy Handler says that would bring the company’s incentives back to the levels they were at in January and February. “The concern,” said Handler, “is that it looks more like the old GM again.”

Such actions by GM would also force competitors to respond in kind and could lead to a “fire sale” on full-size pickups in the fourth quarter.

GM has assured investors that inventories will fall from their current level to a 100 – 110 day-supply by year’s end. The company’s top U.S. sales executive Don Johnson has said that GM will refrain from aggressively increasing incentives. He also said that a planned two-week production shutdown at the GM’s pickup truck plants later this month will bring inventories more in-line with industry averages.

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