U.S. automakers developed a post-Sept. 11 strategy of filling dealer lots with cars and clearing them out with big discounts, a decision credited with helping to keep the nation's economy from falling into an even deeper slump following the terror attacks.
But retailers, citing higher interest costs and slimmer margins in new-car sales, will no longer take large numbers of slow-selling models to accommodate Detroit's overproduction of vehicles. General Motors and Ford plan to cut overtime or impose temporary furloughs to avoid a production glut.
Earlier this year Detroit hoped an improving economy would allow it to reduce discounts, but auto-industry pricing, adjusted to inflation, are still falling and gasoline prices are high.
Mike Jackson, head of Auto Nation Inc., said he's aiming for a 50-day supply of vehicles at the company's 287 dealerships compared with its unsold-vehicle inventory of 75 in June. By the end of September, Auto Nation, the largest auto-retail group in the United States, had an average 53-vehicle supply.
"If you look at how the inventory is coming down and at future production schedules, it shows there was a general agreement that inventory levels were too high and that we weren't going to be able to sell our way out of it," Jackson said.
Industry executives say the inventory-reduction will lead to production cuts even deeper than auto makers have stated publicly and may force more layoffs, especially at GM and Ford.