Dealer Dilemma: Stuck With Old Models; Pressured To Order New Ones
January 27, 2009
By Michelle Krebs
DETROIT -- In Washington, the talk is of what cars automakers will produce in 2011, 2016 and 2020, but the auto industry faces an immediate demand: sell cars today.
Dealers, particularly, face a challenging dilemma as to just how to do that. The auto manufacturers, notably General Motors and Chrysler, are pressuring them to order more 2009 models so that factories can remain open and the automakers can book revenue.
Yet, dealers are buried with bulging stockpiles of old models, becoming increasingly expensive to keep and eating into their bottom-line. Yet, even hefty incentives aren't attracting buyers.
Stuck With Oldies
The dismal economy and the credit crunch that are keeping consumers away from showrooms are causing inventories of previous model year vehicles to pile up on dealer lots.
The percentage share of 2008 model year vehicles sold in December was a heft 39 percent, according to an analysis by Edmunds.com, parent of AutoObserver. Suggesting loads of old models remain on dealer lots, that percentage was significantly higher than the 19 percent of 2007 model year vehicles sold in December 2007.
And all vehicles are taking a long, long time to move off those lots. By Edmunds.com's calculations, the average days-to-turn - the number of days it takes from a vehicle arriving at a dealership until it is driven away by a buyer - stood at a record 86 days in December.
Of the Big Six automakers who make up the bulk of vehicle sales in the U.S., Chrysler had the highest days-to-turn average -- a stunning 124 days, according to Edmunds.com's analysis. That's not a record but only one day short of one; In November 2008, Chrysler set a record of 125 days-to-turn.
General Motors followed at 99; Ford next at 88; Nissan at 83; Honda at 59 and Toyota at 58.
Of the six automakers, GM, Nissan, Honda and Toyota are at all-time highs for days-to-turn. Ford remains below its record of 105 days set in July 2005.
Source: Edmunds.com
Record Incentives Fail To Move The Metal
At the same time, incentive spending by auto manufacturers is at near record levels across the board, in part, due to their efforts to ditch the aged inventory, noted Jesse Toprak, Edmunds.com's executive director of industry analysis.
While it's not good for dealers, it's great for consumers. "For the consumer, this is one of the best times ever to buy a car," Toprak said.
However, Toprak notes that incentives are likely as high as they will go, particularly for the leftover 2008 models. "Lending is improving as the captive finance companies of the automakers get back into the game and dealers are doing their part by discounting prices heavily to get rid of the old inventory that keeps eating at their bottom-line."
Old Models Growing Older and Pricier
Indeed, dealers are pushing the old models because they are becoming increasingly expensive to keep on their lots.
GMAC, which provides financing to GM brand dealers and their customers, announced in January that it will charge dealerships more to keep these aging vehicles on their lots in March. A letter to dealers who use GMAC credit lines to finance their new vehicle inventories detailed an accelerated schedule for paying off loans for the aging models, which include 2007 as well as 2008 models, according to trade journal Automotive News.
Chrysler Financial recently announced a similar policy. However, after a hue and cry from Chrysler dealers, the finance company delayed the effective date of that policy to April 1 from the original Feb. 28 and eliminated several vehicles from the fee list, Automotive News reported.
These charges, called curtailment fees, are not new to the auto industry. However, in the past, they have not been strictly enforced. This renewed effort to enforce them comes at a time when dealers are cash-strapped due to slumping sales as are the automakers and their finance arms.
Automakers Press Dealers To Order New Cars
All of this also comes at a time when automakers, notably GM and Chrysler, are pressing dealers to order more vehicles so they can book the sale as revenue and keep factories humming.
GM and Chrysler, having been granted loans from the federal government, must demonstrate they are viable in filings with the U.S. Treasury Department due Feb. 17 and March 31.
The companies are determined to book some revenue, show improvement in sales and demonstrate consumers like their vehicles, contrary to comments made by some members of Congress.
At last weekend's National Automobile Dealers Association gathering in New Orleans, GM and Chrysler urged their dealers to keep ordering new cars and trucks in coming months despite the sales slump and pile-up of old inventory.
Chrysler executives said they are embarking on a national road show beginning this week to personally push dealers to order more vehicles. On Monday, Chrysler launched a new incentive plan called Employee Pricing Plus Plus on all 2008 and 2009 models. Customers receive discounts of up to $3,500 on 2009 models and $6,000 on 2008 models. Zero percent financing is available for up to 48 months. And a $1,000 cash bonus is available on most models when they are financed through Chrysler Financial or a local credit union.
Posted by Michelle Krebs at 10:39 AM under Analysis , Chrysler , Featured , Ford , GM , Toyota | Comments (0) | digg this | Seed Newsvine
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