Auto OEMs typically shut down plants once a year during the summer to retool for model changeovers and whatever general maintenance is required. But this year summer shutdowns will be about much more than just retooling plants. With inventory soaring on dealer lots, auto OEMs will likely have no choice but to extend their typically summer shut down schedule and it will take a 'yuge' toll on the 1,000s of auto workers that are considered "short term" employees and not eligible for unemployment benefits...the folks who pretty much single-handedly voted Trump into the White House.
As we noted yesterday (see "Auto Bloodbath: Every OEM Misses April Sales Estimates As Inventories Continue To Soar"), after an abysmal March print and growing speculation on wall street that auto sales are looking less like a "plateau" (Ford's label not ours) and more like a debt-fueled bubble on the verge of an epic collapse, auto investors were looking toward April auto sales for signs of hope. Unfortunately, the "hope" trade failed to materialize as every single, major auto OEM missed their April sales estimates in fairly spectacular fashion.
The total auto SAAR came in at 16.8mm for April, compared to hopes of 17.1mm, and the YoY change in unit sales was the worst since 2011.
Meanwhile, inventory days continued to soar to multi-year highs with GM leading the pack on "channel stuffing" with over 935,000 unsold cars sitting on dealer lots.
All of which has automotive analysts now predicting that the 'typical' summer shutdown cycle in 2017 will be anything but typical and could include 3-4 shutdowns for plants producing some of the worst performing models. Per Bloomberg:
“We’re not seeing the same picture as the president,” said Michelle Krebs, a senior analyst with Cox Automotive. “We are not seeing any new plants being built in the United States or increases in production. The fact is we have passed the sales peak and we’re now seeing decreases in production.”
Even if that happens, weeks of production suspension seem almost certain to be on tap for the industry, said Mark Wakefield, managing director and head of the automotive practice at AlixPartners. He said automakers have aggressive plans for temporarily shuttering assemblies that make slow-selling sedans and small models.
“For certain plants, we’ll see three or four summer shutdowns for the tougher-selling products,” Wakefield said. Right now, automakers “are a little less worried about inventories because they know they’ll be taking the plants down more.”
“People are starting to see that this is not necessarily a plateau,” Wakefield said. “It’s a meaningful reduction, and they’re starting to make plans around that.”
Of course, as J.D. Power recently pointed out, growing inventories on dealer lots come despite OEM's spending $16.4 billion on incentives through April, or roughly $3,800 per car, up 13% vs. last year.
“While industry retail sales pace remains high, it is being powered by elevated levels of incentive spending which pose a serious threat to the long-term health of the industry. The total value of incentives used to sell new vehicles has increased by $1.9 billion through the first four months of the year.”
Total incentive spending in the marketplace stands at $16.4 billion through April, up 13% from last year. On a per unit basis, spending for the average new vehicle through April was $3,814, up $460 from a year ago. On trucks and SUVs, spending was $3,740, up $578, while on cars, spending was $3,938, up $308.
Despite record incentive levels, average days to turn continues to rise. Nearly 30% of vehicles sold in 2017 sat on dealer lots for over 90 days, up from 27% last year. “With flat retail demand and inventory at record levels, manufacturers will continue to face a difficult choice between maintaining elevated incentives or making production cuts,” Borrego said.
On the bright side, for Trump anyway, at least the auto jobs aren't going to Mexico.