GM's Pickup Truck Profits Headed for Catastrophic Collapse
Automotive News [AN] reports that GM's recent cutbacks in pickup truck production weren't deep enough. While Ford, Dodge and Nissan dealers are all sitting on a relatively health supply of full-size pickups– 100, 120 and 105 days respectively– GM's inventory channel is stuffed to the gills. "As of Dec. 1, inventories of the Chevrolet Silverado (153 days supply) and GMC Sierra (150 days) were bloated despite $5,000 rebates on 2007 models." The automaker's desperation to move the moribund metal is showing-up at the sharp end. "Ken Fichtner, owner of Fichtner Chevrolet in Laurel, Mont., says he took an additional 10 Silverados last month, at GM's request. This month GM asked him to take an additional 20 trucks, and he said no. 'I am sitting on a 13-month supply right now," Fichtner says. 'They wanted me to go to an 18-month supply but we only sell 10 a month, and I'm in the heart of truck country!'" As Frank Williams predicted back in April, there's only one way this is gonna go: GM will have to put massive incentives on its pickups, dinging residual values and further eroding the profits delivered by GM's former cash cows. And THEN cut production even more.
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"A well done Ody cargo van would get lots of consideration IMO." Certainly an interesting idea. Chevy sold a lot of Astro vans in that configuration and Ford made the Aerostar cargo vans for years as well. What is crazy is that GM and Ford simply abandoned those markets. First of course they let the vehicles grow multiple layers of moss underfoot through over a decade of neglect, then they simply shut 'em down. Really sad. How many market segments can a mass market company give up on and still be a mass market company?
Why make way too many trucks? Maybe this is one reason: GM has enormous overhead and labor expenses that continue even if it doesn't make vehicles. By building up the inventory of unsold trucks, the expenses related to building those vehicles become an asset; i.e., inventory on hand. Thus, those 2007 expenses embedded in inventory won't hit Cost of Sales until the inventory is sold, which will be 2008 for most units. It's a way of kicking the can a little bit farther down the road.