Chrysler’s got an inventory overload

Janet Babin Oct 16, 2006

KAI RYSSDAL: DaimlerChrysler executives met with car dealers in the Midwest today. It’s an annual thing. With a special urgency this year. As the carmaker comes out with its ’07 models, it’s finding dealers don’t want to take on cars they didn’t order. From North Carolina Public Radio, Janet Babin has more.

JANET BABIN: Chrysler’s inventory has reached more than half a million vehicles. The company says that number is too high, and has a plan to lower it.

Analyst John Novak with Morningstar says most of what’s sitting on lots are high-margin pickup trucks and SUVs that dealers didn’t ask for:

JOHN NOVAK:“These are vehicles that weren’t requested by anyone. They were built to keep the factories running, and therefore they really represent a slice of demand that isn’t there right now.”

Novak says the ballooning inventory is a problem for all the U.S. automakers. He says it underscores inherent problems with car dealer franchises:

NOVAK:“The franchise laws that exist tend to protect dealers, the dealers have a lot of power and it’s a difficult process for the manufacturers.”

One solution to the overstock is production cuts. But under union contracts, the company would still have to pay some workers even if they weren’t on the job.

Another option is incentives. If the cost comes down enough, dealers could get interested again.

But writer Lawrence Ulrich says buyers are becoming immune to the carrot and stick routine:

LAWRENCE ULRICH:“It’s like a discount carpet salesman, you know, when they scream that the whole place is on sale 24-7, after a while, you get numb to that and think, ‘Well, I can always get this low price from these guys, I don’t have to go and buy a new car.'”

Morningstar is forecasting a third-quarter loss of about $1.4 billion for Chrysler.

One bright spot for the carmaker is some of its new models. AutoNation, the country’s largest car retailer, reports that the Caliber and Compass are selling well.

I’m Janet Babin for Marketplace.

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