GM dealers balk at ordering new autos
GM dealers balk at ordering new autos
Robert Snell / The Detroit News
General Motors Corp. dealers say vehicles are stacking up on their lots and they are reluctant to order more, especially with the future of the Hummer, Saturn and Saab brands, and additional government aid, in question.
The stance could harm GM’s ability to generate revenue during the worst sales market since the early 1980s. It also comes at a time when GM’s factories are poised to increase production compared with the first quarter, when the automaker implemented unprecedented production cuts.
GM, which avoided collapse in December after receiving a $13.4 billion federal loan package, books revenue when vehicles leave the factory, not when they are sold to consumers, so they need dealers to keep ordering. But some Saturn dealers, especially, say they won’t order anytime soon.
GM said last month it would either sell or eliminate Saturn, Hummer and Saab brands unless a viable alternative surfaces — an announcement that has given consumers one more reason to skip the showrooms, dealers say. February sales of each of those three brands fell at least 57 percent.
John Java, who owns two Saturn dealerships in Texas and Louisiana, said he has twice as many vehicles as he needs and since GM put the brand under review, showroom traffic has evaporated. GM is exploring a spinoff of its Saturn brand that could involve another manufacturer taking over production of the brand’s vehicles, but a deal hasn’t been reached.
"If they tell us what they’re going to do with the brand, we’ll tell them when we’re thinking about ordering new vehicles," Java said. "We’re starving to death."
Output cut this quarter
GM anticipates producing 380,000 vehicles this quarter, which would be a 57 percent decline from last year, due largely to the temporary closure of 20 plants across North America to cut costs and shave inventory in response to an industry-wide sales slump that is hurting all automakers.
The production forecast is expected to rise to 550,000 vehicles in the second quarter, but down 34 percent from a year earlier. That number could be adjusted, GM spokesman Chris Lee said.
GM’s attempts to shave inventory have worked. The automaker said it had about 781,000 vehicles at the end of February, down 17 percent from last year, and about 20,000 fewer than in January.
Ward’s Automotive Reports put’s GM’s inventory number at 773,005.
By comparison, Ford Motor Co., had 417,000 vehicles in inventory in February, down from 600,300, according to Ward’s. Chrysler LLC had 348,213, down from 433,674; and Toyota Motor Corp. had 397,389, down from 416,559.
Production normally increases in the second quarter but this year’s projected GM increase appears distorted due to the dramatic first-quarter cuts, GM spokesman John McDonald said.
"Bottom line is that dealers have fewer cars on their lots than a year ago, and we’re being very disciplined about any production to keep it aligned with demand," he said.
That’s a somewhat new approach, said analyst Aaron Bragman of IHS Global Insight
"It used to be they would run the plants and whatever didn’t sell would go into fleet," he said.
Sagging sales cited
The shrinking sales market is one reason GM has asked the Obama administration for up to $16.6 billion in additional aid. GM said Thursday that it doesn’t need $2 billion in loans this month that it had previously requested from the government.
GM and Chrysler LLC, which also has received federal aid, must report to the U.S. Treasury Department by March 31 whether they have made progress toward trimming costs and becoming viable companies. The automakers could receive additional aid or be forced to repay the loans if the government decides not enough restructuring progress has been made.
Mark LaNeve, GM’s vice president for North America sales, said earlier this month that dealers were not restricted from placing new vehicle orders because of difficulty obtaining financing for stock. GMAC Financial Services, the automaker’s lending arm, has "plenty of capacity," to finance orders, he said.
"The bigger problem’s getting dealers to order vehicles," LaNeve said.
That’s a concern echoed by sellers.
"Ordering cars wouldn’t be on my agenda or a lot of other GM dealers. I’ve got plenty," said Dan Jonuska, a Saturn dealer in Scottsdale, Ariz. Customers also have unreasonable expectations right now. "People are hearing about Saturn’s future and are looking for huge discounts, going out of business sales," Jonuska said.
Even the vehicles that have been selling well are stacking up.
Chevrolet Malibu retail sales were up 33 percent compared with a year earlier. At the end of February, GM had a 90-day supply of Malibus, down from 143 in January, but up from 39 days a year ago, according to Ward’s Automotive Reports. A two-month supply is considered a healthy inventory level, Bragman said.
"Vehicles that are being requested by dealers or customers are the ones where production would be increased," GM spokeswoman Susan Garontakos said. "If you’ve got a lot of Saturn vehicles, you can bet we’re not producing those vehicles. There is not a ramping up of production of vehicles that we’re not selling. It wouldn’t make sense."
One bright spot last month was GM’s crossovers. The Detroit automaker sold 6,400 of its new Chevrolet Traverse, a 23 percent increase from January, and Chevrolet’s sales of its crossovers — HHR, Equinox and Traverse — were up 7 percent from last year.
Scott Allen, a Cadillac dealer in California, has juggled various inventory approaches amid the rise and fall of gas prices. He barely ordered any Escalades last year when gas prices topped $4 a gallon and when he had to order, he only bought the hybrid models. Allen ordered conservatively once gas prices fell to about $2 because buyers had difficulty obtaining credit, and he’s waiting to see whether GM is forced into bankruptcy or receives more aid.
"Maybe after April 1, if the government says the plans are OK," he said. "It would definitely build a lot of confidence."