New Car Glut

[Ming]

AIADA.org
11/02/04

Detroit's post-Sept. 11 strategy of filling dealer lots with cars and clearing them out with big discounts is losing support among the constituency that once profited the most: car dealers.

Some of the nation's biggest auto-retailing groups, citing higher interest costs and thinner margins, in their new-car businesses, say they no longer will crowd their lots with slow-selling cars and trucks to help Detroit's auto makers avoid production cuts.

General Motors Corp. and Ford Motor Co. are already making plans to cut overtime or lay off temporarily thousands of workers to avoid a repeat of this summer's inventory glut. Industry executives expect even more cuts.

For consumers, the upshot could be higher vehicle prices next year, at least for models that have been selling with big rebates in recent months. GM has been offering up to $6,000 rebates on most of its 2004 sport-utility vehicles such as the Chevrolet Tahoe and GMC Yukon during its October "TruckFest" promotion. In September, GM offered no-interest loans for as long as 72 months, up from 60 months previously.

Thursday, in an unusually blunt public criticism of Detroit, Mike Jackson, the head of AutoNation Inc., said the No. 1 U.S. auto retailer has had "intense discussion" with the big domestic auto makers about the need to reduce overproduction of vehicles. Based in Fort Lauderdale, Fla., AutoNation has 287 dealerships and posted $19.4 billion in revenue last year.

The decisions by GM and Ford to scale back fourth-quarter production mark a turning point in the two auto giants' battle to recover from the economic downturn, the shock of the Sept. 11, 2001, terrorist attacks, and the relentless pressure from foreign rivals - - and now DaimlerChrysler AG's resurgent Chrysler Group.

GM's decision in the wake of the Sept. 11 attacks to keep its factories running and fire up a massive sales blitz, featuring 0 percent financing for five years, is widely credited with helping the U.S. economy to avert a deeper slump.

Earlier this year, GM executives expressed the hope that a rising economy would allow the industry to moderate its discounts, and to some extent that happened. But prices in the auto industry, adjusted for inflation, are still declining. Higher gas prices also appear to be damping demand for large SUVs, a crucial source of profit for GM and Ford.

Full Article Here: http://www.aiada.org/article.asp?id=26588&cat=Industry

[Ming]

Some of the nation's biggest auto-retailing groups, citing higher interest costs and thinner margins, in their new-car businesses, say they no longer will crowd their lots with slow-selling cars and trucks to help Detroit's auto makers avoid production cuts.

Maybe GM will focus on selling things that...sell (what a concept!), not vehicles like the 2-door Blazer, just to keep some UAW factory humming but with 4500 dollar incentives to move them.

[Ming]

That's a good point, Buick61. And the reason I didn't upgrade my current ride has a lot to do with that.

[fullsizefan]

Originally Posted by Ming

Maybe GM will focus on selling things that...sell (what a concept!), not vehicles like the 2-door Blazer, just to keep some UAW factory humming but with 4500 dollar incentives to move them.

Amen!

[AMcA]

This is a long overdue development, and it's going to be good for everyone except the consumer. The UAW had a big role (hey, the leading role) in creating the oversupply through its contract requiring virtually full pay whether they were building cars or not. Detroit was then in a position where it made more sense to build than not, because a big part of the cost had effectively already been spent.

The big question is whether the UAW is going to step up to the plate and recognize that it has a role in remedying the problem.

[AMcA]

Long term, the best thing here is going to be protection of used car values which will lead to more solid values for new cars. I read that the lower production for the new Ford 500 already had finance companies giving 500s substantially higher lease residuals than they would give the blow-'em-out Tauruses.

Long term, this will be a huge boost to the domestic manufacturers. short term, there's going to be some heavy adjusting to do.

[apro4x4]

I heard a rumor that a Riviera/Grand National is in the making. I hope this Grand National has a better tranny than my old one !!!!

[Askani]

GM has pushed through these times as well as can be expected. Considering the political climate at the time, their decision to go with incentives have maintained a level of prosperity which would have definitely declined. Now, they are poised to roll back on that strategy and allow new products to acquire market share from other companies. People have to understand that the rebate's were there in order to maintain their current position, not move forward. If you look at the last 4 years you will see that virtually all the marquees have had a difficult time of it, so much so that VW and Mitsu are pretty much on the ropes. The exemption to this is of course toyota, which obviously has some sort of deal with the devil because their product is about as uninspired as it can get.

[Tony's BlkGTP]

Originally Posted by laserwizard

Problem is that the automaker's profits are tied to their production output because of their accounting processes. GM has artificially inflated its sales and profit figures for years by pumping out worthless cars and then trying to sell them after the fact through huge rebates. GM is years behind Ford's revelation that you can INCREASE profits by reducing fleet sales and reducing rebates. The problem with GM is that they have no Camaro or Firebird or any car with any historical legacy to jump start their sales. They have no new trucks coming out SOON and the SUV's that are coming out are gas guzzlers. GM's new cars are bland or carbon copies of old Japanese models. There aren't enough Corvette buyers to make a dent in the sale figures for GM. GM doesn't know what to do with Buick or with Saturn and have ensured that their CSV's have become the 2004 version of the old Chevrolet Nova where there was a Buick Apollo, a Pontiac Ventura, an Oldsmobile Omega and then the Nova. (Nova, Omega, Ventura, Apollo spells out NOVA). The remaining cars being brought out have no soul, no wow factor, and don't do anything better than their class competitors. The only thing GM can do is to pump out cars and to offload the excrement with rebates.

Lazywart, you say all that about GM, but let's look at what Ford is doing. The new 500 is nothing more than a rehashed Volvo platford with a bland exterior, the Focus is based off the old Mazda 3/Protege. They aren't smart enough to update to the new Mazda 3. The Mustank is still based off the Fox platform and is trying so hard to capture that late 60's look. The only original design Ford has is the F150 and I still wouldn't have one. And to top it all of, Ford has fallen in sells behind Toyota. That's really saying a lot, but I guess someone has to support them. It just will not ever be me.

[Tony's BlkGTP]

Originally Posted by Askani

GM has pushed through these times as well as can be expected. Considering the political climate at the time, their decision to go with incentives have maintained a level of prosperity which would have definitely declined. Now, they are poised to roll back on that strategy and allow new products to acquire market share from other companies. People have to understand that the rebate's were there in order to maintain their current position, not move forward. If you look at the last 4 years you will see that virtually all the marquees have had a difficult time of it, so much so that VW and Mitsu are pretty much on the ropes. The exemption to this is of course toyota, which obviously has some sort of deal with the devil because their product is about as uninspired as it can get.

I totally agree with you comments Askani. Both Ford and Toyota are companies that I personally can't stand. They both can rust away. People may ask why, but I'm entitled to my likes and dislikes just like anyone else.

[tgagneguam]

Originally Posted by laserwizard

...GM has artificially inflated its sales and profit figures for years by pumping out worthless cars and then trying to sell them after the fact through huge rebates. GM is years behind Ford's revelation that you can INCREASE profits by reducing fleet sales and reducing rebates.They have no new trucks coming out SOON and the SUV's that are coming out are gas guzzlers. GM's new cars are bland or carbon copies of old Japanese models. There aren't enough Corvette buyers to make a dent in the sale figures for GM. GM doesn't know what to do with Buick or with Saturn and have ensured that their CSV's have become the 2004 version of the old Chevrolet Nova where there was a Buick Apollo, a Pontiac Ventura, an Oldsmobile Omega and then the Nova. (Nova, Omega, Ventura, Apollo spells out NOVA). The remaining cars being brought out have no soul, no wow factor, and don't do anything better than their class competitors. The only thing GM can do is to pump out cars and to offload the excrement with rebates.

Not a Wharton School alumnus, are you?

It seems sort of pointless to again point out the lack of simplicity in balancing worker contracts, production levels, supplier contracts, currency exchanges, incentives (of which Ford is the second most generous in the industry), not to mention many other significant fixed costs. My hope is that GM does not follow DCX's or Ford's suit. They are definitely not the bogey.

It's funny how perhaps the most passionless (in terms of product) auto company, Toyota, posted profits that eclipsed GM, Ford, and DCX combined in the last quarter. How do you explain that? Based on your thinking, it would follow that Toyota would have lost money. Yet, they're in the black to the tune of billions per quarter. And if you say currency exchanges explain entirely their profits, then you aren't paying attention.

And no need to reply, Laserwizard; your lack of response is quite telling in and of itself...

[erasmus]

Originally Posted by Tony's BlkGTP

Lazywart, you say all that about GM, but let's look at what Ford is doing. The new 500 is nothing more than a rehashed Volvo platford with a bland exterior, the Focus is based off the old Mazda 3/Protege. They aren't smart enough to update to the new Mazda 3. The Mustank is still based off the Fox platform and is trying so hard to capture that late 60's look. The only original design Ford has is the F150 and I still wouldn't have one. And to top it all of, Ford has fallen in sells behind Toyota. That's really saying a lot, but I guess someone has to support them. It just will not ever be me.

The only true statement in this babble is that the Five Hundred is a rehashed Vovlo platform. No better than LazerWizards posts. At least he mostly gets his facts straight.

[ibechip]

Just think what we all thought about Cadillac about 5 years ago. GM can bounce back with a vengance at any time and seem to be on the verge of doing so. I just read an editorial that I hope gets posted here written by Angus Mackenzie the editor-in-chief of Motor Trend. He seems to feel that Buick and Saturn are just about to break out of their slumps. Just let Lutz get this thing orchestrated.

[TiburonJT]

Originally Posted by Tony's BlkGTP

Lazywart, you say all that about GM, but let's look at what Ford is doing. The new 500 is nothing more than a rehashed Volvo platford with a bland exterior, the Focus is based off the old Mazda 3/Protege. They aren't smart enough to update to the new Mazda 3. The Mustank is still based off the Fox platform and is trying so hard to capture that late 60's look. The only original design Ford has is the F150 and I still wouldn't have one. And to top it all of, Ford has fallen in sells behind Toyota. That's really saying a lot, but I guess someone has to support them. It just will not ever be me.

Wow, check your facts, buddy.

[TiburonJT]

Originally Posted by erasmus

The only true statement in this babble is that the Five Hundred is a rehashed Vovlo platform. No better than LazerWizards posts. At least he mostly gets his facts straight.

And a GM fan complaining about another company's divisions sharing a platform is ridiculous.