General Motors’ inventory levels have been steadily growing across the U.S. in the second half of 2016, with dealers collectively being in posession of 874,162 vehicles as of December 1, translating into an 87-day supply based on an adjusted sales day basis.
The figures represent a 28 percent growth in inventory levels over the past four months. By contrast, an ideal supply level is considered to be 60 days.
Though GM doesn’t break out its gross inventory supply levels by individual brand or model, an Automotive News report provided the following figures as of December 1:
- Chevrolet Camaro has a 177-day (roughly 6 month) supply of 34,600 units, up from a 74-day supply in 2015.
- Buick Enclave has a 114-day (roughly 4 month) supply of 16,000 units, up from a 60-day supply in 2015
- Chevy Cruze has a 121-day (roughly 4 month) supply
- GMC Terrain has a 114-day (roughly 4 month) supply
- Industry average was 83 days supply
Problematic Developments Or A Purposeful Strategy?
A growing supply typically brings about problems, and GM has already announced that it will cut production and jobs at two of its plants — the Lordstown, Ohio complex that builds the Chevy Cruze and at the Lansing Grand River plant in Michigan that produces the Chevy Camaro along with the Cadillac ATS and CTS.
Though it hasn’t announced plans to do so, it’s possible that the automaker could cut production once again. Such a move would undoubtedly result in further workforce reductions.
However, swelling inventory might be part of GM’s plans, as explained by GM Chief Financial Officer Chuck Stevens, who back in October expanded that inventories are part of GM’s plan:
“What’s really driven the increase is filling out inventory on newly launched products and new entries that we didn’t have before, like the [Cadillac] CT6 or the [Buick] Envision as an example”, said Stevens. “Our inventory levels will be dictated by matching supply with demand. We will continue to watch inventories closely, especially cars, and will take actions if and when required.”
Swelling Incentives Quash Profitability
However, large inventory levels typically result in higher incentive payments, which decrease profitability — a metric that GM has been seeking to improve for itself and investors on Wall Street. GM’s incentive payments were much higher this November than they were a year ago.
According to official PIN data from J.D. Power, GM’s incentive spending was up 35 percent year-over-year in November by nearly $1,300 to roughly $4,900 per vehicle. The jump in GM’s incentive spending is double the $650 and 19 percent year-over-year incentive spending increase across the industry.
But during its November sales call, GM made it a point to state that, despite November incentive spending skyrocketing, its incentive spending in the first 11 months of 2016 was 11.7 percent (as a percentage of Average Transaction Prices), which is just slightly above the industry average of 11.4 percent, and well below the incentive spending of its domestic competitors and many of its global competitors.
What’s surprising is that GM isn’t sticking heavily incentivizing the Camaro nor the Cruze, at least for the time being. Instead, it’s slapping huge incentives on its most profitable vehicles — full-size pickup trucks. The GMC Sierra 1500 Crew Cab LT All Star is currently part of a Red Tag special sale that delivers a total incentive package of $9,680.
If GM decides to cut production jobs amidst rapidly-growing inventory, then the move might spark controversy and unwanted attention from President-elect Donald Trump, who has been highly vocal about retaining and growing U.S. manufacturing jobs during his campaign for presidency.
Interestingly, Trump has yet to call out GM in this regard, while being very vocal about Ford’s production operations in Mexico. Meanwhile, the automotive industry at large is looking at Trump’s administration to review and lower the corporate fuel average fuel economy (CAFE) standards that they agreed to with the Obama administration in 2012.
Old GM ≠ New GM
It’s worth noting that what led GM to its infamous 2009 bankruptcy proceedings was a strategy that resulted in the automaker building more cars than people wanted to buy. That strategy was partially the result of an agreement with the United Auto Workers (UAW) union that guaranteed workers close to full pay even if production was cut, making it less expensive to run a plant and produce vehicles despite low real-market demand.
Wiggle Room Is A Luxury
As it currently stands, GM has quite a bit of wiggle room in adjusting production, inventory supply, and the ensuing profitability-draining incentives. The automaker has elected to idle five of its U.S. plants in January as a way to return to a 70-day inventory supply while also cutting a shift at its Detroit-Hamtramck plant.
Related Information And Reporting
- GM news
- GM sales results