Automotive Overproduction Comparison
How GM Handles a Hit: Build Fewer – WSJ.com
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The WSJ had an article today about how GM is trying to avoid overproduction of hot new vehicles (like the Buick Enclave) so that they don't have to dump inventory to rental fleets or resort to using incentives and discounts to move metal. Both of those practices harm resale value, which is one buying point for many customers.
I read recently how Toyota's goal is to build one car less than customer demand, always keeping that in balance.
So how does Toyota compare to the “Detroit Three” in terms of inventory levels and avoiding overproduction? This graphic from the article tells quite a story.
Toyota has half the inventory of GM, Ford, and Chrysler, not just in total numbers, but in adjusted “inventory per market share point.” Toyota carries fewer days of inventory than their competitors, clearly.
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terrific summary, Mark. That simple chart speaks volumes.
Think of the cash sitting out there in 880K unsold vehicles.
Quick and dirty math says that’s around $8,000,000,000 additional inventory between GM and Toyota (if the average COST of a GM model is $20,000 across all vehicles).
What could you do with $8 BILLION dollars for research and development? What could you do for your employees with $8 BILLION dollars to strengthen employee ties?
Maybe the biggest question is what will GM do with the almost 900,000 vehicles that no one wants to purchase?
Telling stats alright, not sure if you have picked up this article on Chrysler from the latest “Economist”, inventory woes are really telling on them and for the life of me it I don’t envy the staff working there. I recall talking to an ex GM staffer now working for Molson Coors and she said the working in these outfits is like a being on life support machine, you never know when someone is going to switch it off. You have to admire those that can stay motivated in such a climate, or is it really that bad?
The dealer inventory is not on GM’s books, it is owned by the dealers. So it’s not directly GM’s problem, until they have to start slashing prices to move metal, which then starts harming GM’s reputation and pricing power.