Are Auto Companies Headed for Another Bailout?
According to a report in Bloomberg this morning inventories at auto dealers in America are returning to “scary” levels (in the words of one dealership owner). The Chevy Silverado, General Motors (NYSE:GM) highest selling vehicle, is a lead example, stocked at 6 and 1/2 months of supply at one dealership, with average GM truck inventory at 122 days worth of avg. sales. The high inventory levels are leading some to conclude that car-makers are stacking future earnings onto balance sheets this year, in a desperate effort to sustain the belief that their companies are on the rebound.
The developments prompted one Jeffries analyst to comment, “It’s unbelievable that after this huge taxpayer bailout and the bankruptcy that we’re right back to where we were…There’s no credibility. In a research note he asked: “Is GM falling into old, bad habits?”
Despite unusually high inventories, sales data for automakers in June was very strong, with U.S. companies Ford (NYSE:F) (up 14%), GM (up 10%), and Chrysler (up 30%) all posting upbeat results. However, concerns linger with respect to truck sales, which make up the mass of inventory overstock at auto dealers. Paul Ballew, Chief Economist at Nationwide Mutual agrees, saying “Truck sales are pretty subpar, and that’s really the only area that is getting my attention. If you’re at GM or Ford, you’re certainly focused on that issue right now, and you should be.”
Poor truck sales combined with high inventories seem poised to threaten recent strength from the auto sector, though General Motors’ (NYSE:GM) VP of Sales Don Johnson insists the company is running its business as well as ever, “We’re managing the business to match production with demand in the marketplace. Nothing in the last few months that we have done would indicate any different.” Though he noted at a conference call that GM (NYSE:GM) planned to reduce its output of trucks in the 3rd and 4th quarters of this year.