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  • Writer's pictureMike V.

WSJ: Car Dealers Overflowing With Inventory

GM Renaissance Center in Detroit, MI

Dealers are starting 2019 with a growing surplus of inventory of unsold vehicles, which will likely pressure them to cut output: there were 3.95 million vehicles in lots at the end of January, a 4% increase from December and up nearly 3% from last January.

Seasonality exists in the industry and the winter is traditionally slower for automotive sales, the inventory build up could be problematic because dealers are starting the year with more unsold inventory than they had when auto sales peaked three years ago. Back then, 17.55 million cars were sold and now, while the latest estimates expect less than 17 million vehicles to be sold in 2019.

Auto companies were also relying on fleet sales. Fleet sales and rental car sales are some of the last channels that auto companies have to try and juice results. Mark Wakefield, a co-head for the automotive practice at distressed consulting firm AlixPartners called this move a "short term band-aid".

Manufacturers continue to try to avoid heavy discounting to sell vehicles: the industry spent about $3720 per vehicle in January to incentivize sales, which was down $140 from the prior year's record incentives. In order to avoid offering discounts, automakers are going to have to trim production. There are 48 new model launches planned for the US this year, which is up from 46 last year and 36 five years ago. Dealers believe that manufacturers are simply being too optimistic about the upcoming year.

David Rosenberg, chief executive for New England dealership chain Prime Automotive Group said: "There is an oversupply of new products, but not everyone is going to achieve their sales targets. We’ve carried too much inventory because we’ve been conditioned at artificial rates."

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