There are sets of numbers about the auto industry that few journalists pay much attention to, but they bear considerable weight when General Motors’ current situation and now partially-predictable future are concerned.
The numbers other auto and business journalists report are obvious: sales and production. Lately some have also been mumbling about dealer counts, but they’ve often gotten it wrong. And what they largely and routinely overlook is “days supply.”
TheDetroitBureau.com is here to set matters straight.
Days supply, as applied to domestic automakers, is considered by many insiders the real measure of relative success in the auto industry. The number is derived basically by subtracting sales from production, with the answer fundamentally telling the state of dealer inventories along with vehicles in-transit and others produced but still in automaker hands.
In other words, at the current sales and production rates, how long would it be before the inventory is exhausted, or selections so limited that sales stumble. For manufacturers, days supply can be more important than the daily sales rate, although both counts can drive production scheduling.
With that introduction, let’s take a look at GM’s numbers, as reported in Automotive News during April. In the first quarter of 2009, as the mass media reported, GM’s dealers of its various brands retailed 409,702 vehicles-Buick, Cadillac, Chevrolet cars and trucks, GMC trucks, Hummer, Saturn and Saab.
That number was down 49% from the same period a year before, while overall industry retail deliveries in the U.S. were off 38%. (By the way, the retail sales quoted here are for “light vehicles,” i.e., not including heavy trucks such as highway tractors.)
Among these GM brands, there were roughly 20,500 Buicks sold, about half as many as Pontiac’s 40,900. Pontiac was down 44% from the same period of 2008 while Buick was off 46% in the auto industry’s gut-busting recession. But retail sales don’t tell the whole story. Buick’s days supply, or inventory, as of April 1, 2009 was 109, ranging from 82 for the Enclave to 126 for Lacrosse to 133 for Lucerne. As an aside, let’s hope that Buick’s top ranking in the recent J. D. Power reliability survey gives a sales boost to the brand.
At the same time, Pontiac’s days supply was 114, ranging from 82 for the discontinued Grand Prix and 83 for the G6 to industry toppers of 443 for the G5 and 617 for the new G3, according to Automotive News. That means one of three things for Pontiac and those two high-numbered G’s: they are not selling as well as GM hoped; the corporation has deliberately built up their inventories in anticipation of new model introductions, the G3, for example; or has planned production shutdowns for later.
The rumors of extensive temporary GM plant shutdowns for this summer became reality on April 23, as TDB reported. At the end of March, about 767,000 GM vehicles were in U.S. dealer stock, down about 108,000 vehicles (-12%) compared with the same period last year; and down 105,000 vehicles from year-end 2008. However, GM dealers still had roughly 120 days of supply, twice what was once considered normal when industry volumes were at much higher levels. GM says these new cutbacks will help reduce U.S. dealer inventory levels to a level of approximately 525,000 vehicles by the end of July. GM says a “strong selection” of vehicles will remain available for shoppers.
For comparison, consider the days supply for Mercury, Ford’s middle-of-the-market brand: 67 days, ranging from 22 for Grand Marquis to 95 for Mountaineer. Mercury’s car sales in the first quarter were greater than Buick’s, while its trucks were lower. Even Chrysler (82) and Dodge (86) had far lower relative inventories than Pontiac and Buick.
Most importers and transplants, with fewer dealers than domestics and generally longer supply lines, keep more modest inventory levels: for example, Toyota 65, Honda 92, Nissan 62, BMW 51, Daimler 59, Volvo 55, Saab 123, VW 137. You can see that the last two suggest troubled waters for the brands.
Now, a brief comment about dealer counts. Domestic dealer franchises were built up in the early days of the auto industry when reliability was iffy and seemingly every rural crossroad had an automobile dealer, whose origin might well have been a carriage livery or a blacksmith shop. These were local, family-owned and operated businesses, not chains listed on the New York Stock Exchange. In the post-World War II population- and building-boom, metropolitan dealers expanded rapidly into the suburbs before anyone ever heard of Toyotas and Beemers. And once a franchise is granted, it is devilishly hard for a manufacturer to yank it, because at the state level, automobile dealers have great political power. Thus you have an apparent imbalance between domestic and foreign brand dealer franchises, and the reason the once “Big” Detroit Three somehow have to slash metro dealer counts.
As of January 1, 2009, GM had 13,132 franchises, Ford 6,546 and Chrysler LLC 7,819, whereas, for comparison, Toyota had a mere 1,235, Honda 1,029, Nissan 1,065 and the new kid on the block, Hyundai 631.
But those numbers are misleading, because so many of the Detroit-based franchises, as noted, are in small towns. Further, many franchises are “dualed” with even rival brands. GM noted that it had 6,246 “dealers” at the end of 2008, which is different from franchises because of dualing, such as a Pontiac-Buick-GM-Cadillac store. Still, it is easy to see that GM and Chrysler are relatively over-dealered compared to just Ford Motor alone. GM announced it has targeted a dealer count of 3,605 by the end of 2010, a worthy but difficult and potentially costly task.
In another column we’ll take a look at how GM might integrate Pontiac into Buick in order to maintain the link to Pontiac fans. Legal considerations might preclude this. Remember, Pontiac’s time runs out in 20 months, according to GM’s April 27 announcement.