As we pen this Supply Chain Matters commentary in the week just after the Christmas holiday, many thoughts turn towards objectives in the year 2017. For the U.S. auto sector, those thoughts currently reflect on a situation of building oversupply of certain models.

Just before the holiday, reports surfaced that all three U.S. auto domestic manufacturers have scheduled additional idle time at some factories in response to building finished goods inventories of some models of sedans and minivans. There is additional caution that light vehicle demand will cool in the coming year. ford-f150_450

General Motors indicated it would idle production at several factories in January accompanied by some additional job cuts. According to media reports, GM is expected to cut 3000 jobs in the first quarter due to slackening product demand and building inventories. According to a report by The Wall Street Journal, GM entered December with upwards of 870,000 vehicles on dealer lots, 26 percent more than the same period a year earlier.

Fiat Chrysler indicated plans to temporarily idle two Canadian plants, each responsible for producing the Pacifica model minivan, during the first week of January. According to WardsAuto.com, four brands of Chrysler vehicles had the equivalent of 92 days of supply and the end of November, 13 days higher than the year earlier period.

Likewise, Ford Motor plans to idle a Kansas City truck plant for a week in January to curb a reported rising of model F-150 pickup truck components and work vans inventories.

According to various auto dealerships providing background color to industry reports, the current industry challenge is reflected by continued high demand for pick-up trucks and large SUV’s, resulting in burgeoning inventories of standard and fuel efficient sedans.  This period of lowered gasoline prices has made the U.S. consumer somewhat hyped on acquiring the largest, most expensive vehicles, while gasoline prices remain low. Obviously, the days of $3-$4 per gallon fuel costs have taken a back seat in consumer memories, even as gasoline prices now begin to climb again.

Perhaps the good news is that U.S. auto producers are taking more timely proactive steps to manage the buildup of certain model inventories and to set realistic production schedules for the coming year.  The not so good news, however, is an industry that is content to keep promoting sales of the largest, most expensive vehicles to boost bottom-line margins, while defeating efforts to spur sales of more fuel efficient and environmentally friendly vehicles. The result may well be U.S. consumers with rather large, multi-year auto loans that could dampen overall industry demand for many future years to come.

One wonders if any lessons from prior years have been absorbed.

Bob Ferrari

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