We mentioned in this month’s edition of Guidelines that new vehicle inventory moved predictably higher last month, as overall days’ supply for the industry increased by 16 days to reach 67.  We also pointed out that burgeoning domestic brand supply – particularly for large pickups – was the primary catalyst behind this growth.  

A dramatic change in supply on a month-to-month basis isn’t necessarily something to be alarmed about because the numbers of units on the ground can be dictated by things like seasonal buying patterns and new model changeovers.   

We take note however when we see sequential movement that is out of the ordinary or when things are dramatically different from the prior year, and something like last month’s 41 day month-over-month increase in domestic large pickup inventory practically demands a deeper review. 

Looking across the top selling models in the segment we see that two nameplates, GM’s Chevy Silverado and GMC Sierra, played a major role in the leap in supply.  When compared to last January, supply for the Silverado and the Sierra increased by 26 and 37 days to reach 115 and 134 days respectively, while supply for the other models in the segment either increased marginally (F150) or declined.  


 

Why the excessive build up in inventory?  Is GM ramping up production in anticipation that the steadily healing economy will lead to stronger demand for large pickups? 

Production data dismisses this notion.  Combined current year production numbers for the Silverado and Sierra are projected to be around 649K units, or -8% less than what was produced in 2011.  Conversely, Ford, Dodge, and not surprisingly given last year’s production constraints, Toyota, are all planning to increase production this year.

So why the jump in supply then?  Two reasons – a pullback in incentive spending and product age. 

Starting with age, next to the ancient Nissan Titan (which hasn’t been updated since its release for the ‘04MY) GM’s family of large pickups is the oldest on the market today.

The manufacturer has pretty much left the Silverado and Sierra unchanged since their last major redesign for the ‘07MY, while both Dodge and Ford made substantial improvements to their full-size offerings for 2009. 

In addition, GM reduced incentive spending on the Silverado and Sierra by -10% and -15% on an annual basis last month, while Dodge and Ford increased spending on Ram and F-Series models.  

As one might expect, advanced age plus fewer spiffs doesn’t equal stronger demand and sales for both GM models fell last month.  It was this combination of factors that helped to drive GM pickup inventory up by an average of 48 days relative to December. 
So what does this all mean?

Given last month’s soft sales performance and hefty inventory levels, expect to see a significant bounce in incentive spending on GM’s large pickups over the course of the next month or two, or at least until inventory is brought back in line with demand expectations. 

The recent uptick in gas prices, up by 30 cents since the beginning of the year, and the media’s warning of further increases may create an adverse effect on demand for pickups.  This will make it even more challenging for GM to get truck inventory back to healthy levels.  Thankfully, used supply for pickups remains low, which should mitigate downward pressure on used prices even if new vehicle incentives increase.   However, if new vehicle inventory stays at these alarming levels, there will eventually be downward pressure on used prices for large pickups, which will be especially pronounced if gas reaches and maintains prices at $4.00 per gallon.