I wonder if some people understand the magnitude of the current unsold inventory of Big 3 cars. Before we dive into the story in today’s Wall Street Journal, headlined U.S. Auto Sales Turn in a Sluggish November, we need to get the usual formality out of the way:
Long-time No. 2 auto maker Ford was outsold by Toyota Motor Corp., whose sales rose 15.9%.
Remember that Toyota’s factories are also in the U.S., subject to U.S. regulations and all those other "competitiveness burden" myths that Big-3 apologists like to blather about. Ok, with that "other side of the story" out of the way, we can get into the meat about how and why the Big 3 continue to nosedive. I’ll leave out all the usual mundane stats about declining auto sales margins and market share, because this particular article has some other pertinent facts. A few quotes:
As of November 30th, GM, Ford, and DaimlerChrysler had a total of more than 2.2 million cars and trucks in stock, equivalent to the total amount of vehicles that the trio sold in the first quarter of 2006.
GM has about 120,000 large sport-utility vehicles in stock, which is roughly four months’ supply at current sales rates.
Three to four months of inventory!
Although Big-3 sales have ticked up slightly in the most recent quarter, they are all anticipating a further slowdown in 2007. This, coupled with significant drops in rental/fleet sales (which make up a surprising percentage of total sales), will make it even more difficult to reduce the inventory numbers. The rental/fleet sales factor is interesting, and perhaps is the reason why my last two rentals at Hertz have been a Subaru and a Volvo instead of the mundane plain vanilla GM ride.
Dealers used to like high inventories as it made it easier to rapidly find cars for immediate buyers. But no more.
Dealers, led by No. 1 auto retailer AutoNation Inc., have increasingly resisted the Detroit auto maker’s pleas for them to warehouse more cars on their lots, pushing instead for auto makers to reduce stocks to 60 days’ supply or less.
When the roughly 26,000 new car dealers in the U.S. are complaining, you’ve got a problem.
If the Big-3 were really serious about implementing lean and competing with Toyota, they would simply shut down production for at least two months and stop converting labor and steel into unwanted products… in a rather wasteful way to begin with. They wouldn’t lay anyone off during these two months; they would chew up some of their significant cash reserves to keep those employees active. Active by training them and then turning them loose to map and kaizen every process they can identify. Yes even I doubt that is realistic in public companies with bloated bureaucracies focused on holding back the unions instead of working with them.
But it would demonstrate commitment, create massive change, and simply be the right thing to do.