GM's Bulging Inventory of 2006's "Hot" Cars

Monday's Wall Street Journal reported that GM's unsold finished goods inventories of cars have become enormous.

The article states that, at the end of December, GM

"had more than one million vehicles in stock in the U.S. That's equivalent to about 41,000 vehicles for every point of its 24.6% U.S. market share. By contrast, Toyota..., one of the world's most profitable auto makers, carried about 16,000 vehicles of inventory per point of its 15.4% market share.

Among the unsold vehicles, the piece later explains, are some of the models that GM's management felt were "hot" models for last year- the Chevrolet HHR, the Buick Lucerne, and the Saturn Aura. Some of these cars now have a 90+ day supply sitting on lots across America.

Apparently, we have yet to see the much-vaunted, newly-creative GM emerge. Because the products they evidently pinned much of their 2006 sales hopes on are sitting, unsold, in storage around the country.

GM finds itself in a vise of its own device, in that it must, on one hand, cut costs, such as inventory financing, and, yet, maintain production in order to generate cash flow to assist its 'turnaround.'

Failure to keep production levels up starves it of cash to pay its mountain of fixed liabilities relating to healthcare and pensions, but unsold inventory ties up much-needed liquidity, as well as spurs price cuts via low-interest rate sales programs.

Interestingly, GM's haphazard pricing tactics have contributed to its woes. With much car shopping initially done online now, the company's reliance on relatively higher sticker prices, coupled with the expectation of dealing on financing, causes many buyers to exclude the company's products from consideration.

Of the dilemma, GM's CFO, Fred Henderson was quoted as saying,

"This is the area where we have a lot of work to do in the future."

No kidding.

Having been in the auto business for, oh, nearly a century, with, at one time, the overwhelming market share in the American auto market, you would think GM's management would, by now, have its customers' buying behaviors down pretty well, wouldn't you?

Evidently not.

Yet another firm for which 2007 is starting out with a thud.