F Ford Motor Company

By Mike Colias and Anne Steele 

A glut of new vehicles are languishing at U.S. dealerships, as auto makers produce cars at a near-record clip amid softening demand.

U.S. auto sales slipped 2% in January compared with the same period a year ago, according to Autodata Corp. The seasonally adjusted annual sales rate outpaced analyst expectations, but it was the fourth time in the past six months that volumes slumped from the prior year despite generous incentives.

The results are forcing Detroit car companies and foreign rivals to more directly confront a tough strategic decision: Keep ratcheting up discounts to spur showroom traffic, or lay off workers so production can more closely mirror underlying demand.

Both options come with a cost. While incentives move metal, they cut into margins and threaten to undermine consistent pricing increases the industry has notched in recent years. Slowing assembly lines eats up cash because underused factories still require large amounts of capital to maintain.

Discounts and rebates equaled $3,635 per car on average last month, according to ALG, far exceeding incentive spending in January 2016 and representing a 10% discount off the initial asking price.

ALG, a data provider owned by TrueCar Inc., said average transaction prices were stronger in January than a year ago -- reflecting brisker sales of expensive trucks -- but prices declined 3% compared with December levels.

North American assembly plants continue building an increasing amount of stock even as seven years of sales growth are grinding to a halt, leading to an industrywide inventory average equivalent to three months' supply, according to a WardsAuto.com estimate.

RBC Capital Markets estimates the industrywide number is nearly 10% higher than what is typical.

The problem is especially acute among the Detroit 3, where supply exceeds 100 days'. While auto makers typically build inventory early in the year in advance of the warmer months, many are complaining that they have far too many sedans and compact cars, both of which have lost popularity as gasoline prices remain low.

General Motors Co. had run light on inventory until late last year and has begun cutting shifts and thousands of jobs at certain car plants to address the glut. Still, it is boosting truck output in anticipation of an even stronger appetite for pickups and SUVs in 2017.

Even with low gasoline prices, GM and others are working harder to earn truck sales. Chevrolet, GM's mainstream brand, is offering $7,500 on some popular 2017 Silverado pickups, up from $3,500 last month, according to a document sent to dealers Wednesday.

Some older 2016 models are being discounted up to $11,000, from $5,000 in January.

GM's January sales fell 3.8% compared with the same period a year ago, with 195,909 deliveries representing the lowest volume for the No. 1 U.S. seller since January 2014. Ford Motor Co. reported a more modest 0.7% decline, and said it expects a strong selling season ahead.

"We will continue building inventory into the spring," Mark LaNeve, Ford's sales chief, said during a Wednesday conference call.

The Deaborn, Mich., company is trimming some production in the first quarter regardless of its optimism.

Some analysts argue a cautious approach is needed. "This isn't a one or two month thing," Mark Wakefield, a co-leader in AlixPartners LLP's automotive practice, said in an interview.

Mr. Wakefield said that even though some auto makers are taking steps to curtail supply, it only takes one to offer big bargains and the rest of the market will follow.

"It's game theory," he said. "It takes one big player."

Much like industry leaders a decade ago, today's auto executives increasingly are betting on pickup trucks and sport utilities, which represent more than 60% of light-vehicle sales in the U.S. That compares with 51% in January 2014, just before sharp declines in gas prices.

Meanwhile, vehicles such as the Toyota Camry, once a perennial fixture on the U.S. best-seller list, struggle. Toyota Motor Corp. reported a 25% decline in demand for its bread-and-butter sedan in January, and said its smaller RAV4 SUV outsold the Camry.

Executives last month showed off a new version of the car for 2017, saying it should help reinvigorate interest in the stale segment.

Toyota reported an 11.3% decline in January, blaming the performance in part on strong December results and a lack of luxury SUVs.

Honda Motor Co. and Nissan Motor Co. both reported sales increases of roughly 6%, with both auto makers highlighting truck offerings, such as the Nissan Titan pickup and the Acura RDX crossover wagon.

Auto makers are focused more on ramping up truck supply even if it costs them market share.

Fiat Chrysler Automobiles, for instance, discontinued two passenger car lines last year and has seen across-the-board correct sales declines, including an 11.2% swoon in January, as a result.

Even with the slump, the company is reporting stronger margins in North America.

"Trucks are the gift that keeps on giving," said Aaron Zeigler, president of Zeigler Automotive Group.

Mr. Zeigler's group sells at locations in Michigan, Indiana and Illinois. Fiat Chrysler, including its hot Jeep and Ram brands, are among the vehicles he sells.

Mr. Zeigler expects auto sales, which topped 17.5 million in 2016, to remain strong. He cites a strong stock market and good feelings about the economy.

--Anne Steele contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 01, 2017 17:11 ET (22:11 GMT)

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