Analysts: More North American production cuts needed
November 4, 2008 - 4:14 pm ET
North American vehicle sales are falling so precipitously that automakers must accelerate fourth-quarter production cuts or risk an inventory glut by year end, analysts said today.
General Motors may have to cut an additional 150,000 vehicles in the fourth quarter -- beyond a forecast that already was 16 percent below the year-ago quarter's production, Barclays Capital analyst Brian Johnson said in a report today.
GM should produce about 725,000 units this quarter instead of the 875,000 forecast, Johnson reported.
Ford Motor Co. and Chrysler LLC also need to slash faster than previously anticipated, he wrote.
GM spokesman Chris Lee said the automaker has no new production cuts to report.
Failure to curb production will allow the days supply of vehicles to balloon, Johnson said. In terms of units, inventories are down substantially from a year ago at the Detroit 3.
Ford finished October with 492,000 vehicles in inventory, 72,000 fewer than in October 2007. But vehicles are selling so slowly that the days supply is increasing dramatically.
Johnson reports that Ford has 103 days of supply at the October sales rate, compared with a 10-year average for September of 76 days. GM and Chrysler have similar issues, with the total numbers of inventory down but days supply well over 100 days, Johnson reports.
Ford already is planning to cut North American production of cars and crossovers during the fourth quarter, Ford sales analyst George Pipas said Monday.
More details on the production cut are expected Friday when Ford details its third-quarter results. It would mark the fourth time this year that Ford has announced cuts to its North American production plan.
The latest cut comes after a 32 percent skid in Ford's U.S. sales during October compared with the same month last year. Industry sales for the month translated to an annual rate of around 10.9 million, the lowest since March 1983.
Robert W. Baird & Co. analyst David Leiker sees it the same way. He said in a report today that to align production with demand, the automakers must cut North American production 25 percent in the fourth quarter. Currently, a 15 percent cut is scheduled.
Amy Wilson contributed to this report