Automotive Slump?

CR Supply Chain Consulting is as the name conveys a management consulting company focused on Supply Chain Operations and Improvement.  We often focus on inventory as one of the top arbiters of Supply Chain and general business performance.
In the past few weeks, we have noticed a trend in automotive advertisements.  It seems in almost every ad we see, and as it is football season we are watching a fair amount of television, the offers are for for zeros:  $0 down, $0 first month payment, $0 security deposit, $0 due at signing.  This is, of course, for leases.  It is not much different than for purchases with $500 - 5,000 rebates and 0% financing up to 60 months.

This makes us worry about the health of the economy and the strength of what has been an exceedingly tedious recovery from The Great Recession.  It also makes us worry that car inventories are piling up and layoffs are probably looming on the horizon.

As far a General Motors is concerned, layoffs are here.  In an article in today’s, December 4, 2012, Wall Street Journal announced that General Motors is cutting production to control inventory.  So far they are only idling their Lordstown, Ohio plant.  It will be closed for three weeks rather than the two that was already planned as part of their Christmas shutdown.

GM has sought to boost sales and market share without resorting to big discounts that could hurt its profit margins and already depressed stock price. GM remains 26.5% owned by the U.S. government and its prospects of getting free of federal ownership and oversight hinge on raising its share price closer to the $53 a share the government needs to break even on its investment.

GM shares fell 37 cents to $25.51 on Monday while Ford shares fell less than 1% to $11.41, both in 4 p.m. New York Stock Exchange trading.

In yesterday’s Detroit Free Press, there was an article that boasted that November vehicle sales  were at the strongest levels since January 2008.  The brisk sales were due to Hurricane Sandy.  Cars are totalled when exposed to salt water, so there were a lot of cars destroyed.  People in the Northeast simply had to be replaced.  As per the Free Press article:  

Sales rose 14.4% at Chrysler, 6.4% at Ford and 3.4% at General Motors. Asian automakers, who dominate the Northeast and West Coast markets, reported big gains as sales soared 38.9% at Honda, 17.2% at Toyota, 12.9% at Nissan and 7.8% at Hyundai.

After reading these articles, we are totally puzzled.   Toyota is offering 0% financing on Camrys and other vehicles for 60 months.  Honda is offering 0.9%.  How high would the inventories be if hurricane and not boosted sales?  How soft is the auto market?  How does this reflect on the economy in general?

It will be interesting to see what happens in the first few months of 2013.