Detroit’s so-called “Big 3” automakers may face “tough choices” as they push to reduce inventory levels, according to Wells Fargo analysts.
Jeep owner Stellantis (NYSE:STLA), Ford (NYSE:F) and General Motors (NYSE:GM) were forced to raise prices during the pandemic to explain supply chain problems that led to shortages of new cars. But that led to persistently elevated inventory levels, with the Big 3’s inventory backlog at the end of September ending at 80 days – above the historical average of 72 days.
Higher inventories can increase pressure on automakers to offload vehicles at deeper discounts before the arrival of new 2025 models.
All of the Big 3 are now on target to draw down inventories in the 50-60 day range, which would be below pre-COVID levels of around 70 days, Wells Fargo analysts noted.
However, they pointed out that this amounted to “big talk”, adding that car groups still had to “walk the talk”.
For Stellantis, which has high inventory levels in part due to its decision to cut prices at a slower pace than its rivals, analysts said planned cuts in light vehicle production should help correct inventories below the range of 50-60 days. Earlier this week, the company said it expects to reduce production ahead of the launch of new models at the end of the 24th.
However, current-quarter production at Ford and GM “looks underwhelming,” analysts said. They estimated that groups would need to cut output by 70,000-80,000 units in the fourth quarter to meet their inventory targets.
“Both could also lower [the price] to gain share. We think a combination of cuts, [price] and miss targets is likely,” the analysts said.
Quarter-on-quarter, the declines would equate to a 14% to 15% decline. Such a steep production cut would mean about $800 million to $1 billion in lower earnings before interest and taxes in the fourth quarter, analysts predicted.
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Reference;
Kanowsky, S. (2024) ‘Big 3’ carmakers face ‘tough choices’ to hit inventory targets – Wells Fargo By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/big-3-carmakers-face-tough-choices-to-hit-inventory-targets–wells-fargo-3671010 (Accessed: 18 October 2024).
