AutoNation is shrinking

Rachel Dornhelm Oct 27, 2006

TEXT OF STORY

KAI RYSSDAL:There’s no break in bad news for the Big Three auto makers this week. All three reported serious third-quarter losses in the past few days. Now the country’s largest chain of auto dealers says it will slash its Detroit orders by almost a third this quarter. And, as Rachel Dornhelm reports, other dealers could follow suit.


RACHEL DORNHELM:The country’s largest car dealership chain, Auto Nation, says its cutting domestic orders. That’s because dealers’ parking lots have become just that for American models. The cars aren’t moving.

Morningstar Auto Analyst John Novak says it’s been several years since the Big Three’s inventories were this high, but the biggest problem is at Chrysler, which built a bunch of cars on spec.

JOHN NOVAK:So these cars have been stocking up on lots throughout Detroit and they estimate right now they have about 50,000 to 80,000 cars just sitting there without firm dealer orders.

But Auto Nation’s CEO had harsh words for all three car makers. He says they routinely understate inventory sitting with dealers, by folding in fleet sales figures.

DAVID WELCH:

And he’s got a point about that.

That’s Business Week auto writer David Welch. Welch says Auto Nation’s announcement and accusations could be the start of a dealer backlash.

WELCH:I think the dealers are finally saying look we’re trying to help you guys, we’ve been doing it a few years, enough’s enough. And it just creates a little more tension for Detroit to deal with.

Welch says some large and independent dealers have grudgingly taken hits to their profits in the past few years. But he wouldn’t be surprised if some now follow Auto Nation’s lead and cut their own Detroit orders.

I’m Rachel Dornhelm for Marketplace.

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