1. Why is AutoNation having a problem with its inventory?
They order a customized vehicle for a customer, but such an order usually adds six to eight weeks o the transaction. The customer who wants to buy on the spot must choose from cats on the lot that the manufacturer has already configured, priced, and shipped. Dealers often have a glut of new cars sitting in their lots for months at a time that no one wants to buy it. The swollen inventory and slow turnaround hurt dealers because they must borrow money to pay for the cars the manufacturers ship.
Why is this also a problem for auto manufacturers such as GM, Ford, and Chrysler?
Their manufacturing processes are not set up to quickly ...view middle of the document...
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Unsold cars rile mega-dealer
AutoNation: Glut worse than makers say, requires bigger cuts
October 27, 2006
The nation's largest dealer of new cars and trucks said Thursday it is struggling to sell many more domestic vehicles than industry reports about swelling inventories would suggest -- and the problem must be dealt with soon.
"The challenge that we have is even greater than people are talking about," Mike Jackson, chief executive officer of Florida-based AutoNation Inc., told the Free Press in an interview. "It's weighing on every retailer."
AutoNation is a crucial cog in the U.S. auto industry, with 80 General Motors Corp., 48 Ford Motor Co. and 58 Chrysler Group dealerships nationwide, in addition to 147 other auto franchises. Jackson's remarks came after AutoNation reported that its profits sank 37% in the past three months, to $81.8 million -- giving a glimpse into how Detroit automakers' falling sales are affecting dealers.
Jackson said GM, Ford and Chrysler need an aggressive combination of incentives and production cuts soon to deal with the inventory glut. Otherwise, he said he feared dealerships across the country would be selling 2006 vehicles well into 2007.
All three automakers noted that they already are taking steps to cut production.
Ford said it would cut its production of new cars and trucks during the last three months of the year by 168,000 vehicles -- its deepest production cut in more than two decades. GM is cutting 150,000 from its production. Chrysler, meanwhile, has said it would build about 135,000 fewer vehicles during the second half of this year.
Paul Ballew, executive director of market and industry analysis at GM, and George Pipas, Ford's top sales analyst, emphasized that AutoNation orders its vehicles, so it has some control over its inventory levels.
But Jackson insisted the automakers are not being aggressive enough in managing their supply of vehicles.
Dealers take out hefty loans to pay for the big inventories they keep on their lots, an expense that can become painful when inventories swell or interest rates rise. The Federal Reserve raised interest rates 17 straight times before August to keep inflation in check. That means the candle has been burning at both ends for domestic auto dealers.
How inventory is measured
Jackson expressed concern the automakers are...