NEW YORK–Many auto dealers have started 2018 with heavy inventories of unsold vehicles on their lots, with analysts suggesting the situation could put pressure on manufacturers to cut factory output as U.S. auto sales cool, according to a new report.
There were 3.95 million vehicles on dealership lots at the end of January, a 4% increase from December and up nearly 3% from the prior-year January, according to data released Monday by WardsAuto and reported by the Wall Street Journal.
“While January is typically a slower month for new-vehicle sales, analysts say the rising stock levels are becoming problematic because car companies will start this year with more unsold inventory than they had three years ago when U.S. auto sales peaked at 17.55 million for the year,” the Journal reported. “Industry forecasters and some auto executives predict sales this year will fall well below that figure, dropping to under 17 million vehicles for the first time since 2014.”
The Wall Street Journal noted General Motors has already moved to end production at five North American factories this year in response to falling sedan sales, and that more automakers may follow suit as interest rates have risen and consumers find more affordable options on the used car lot.
Car Sales Were Up in January
U.S. auto sales in January, however, were down 1% over the prior-year month, according to Automotive News, the Journal reported. Passenger-car sales, which include sedans, declined 4% last month, underscoring a continued shift in consumer preference toward larger, more versatile crossovers and SUVs, the Journal added.
Jonathan Smoke, an economist with Cox Automotive, told the Wall Street Journal 2018’s strong results were lifted by sales to fleet buyers that aren’t likely to be repeated again this year.
The new tax-reform package made buying and replacing vehicles used for business cheaper because the entire expense could be written off all at once, Smoke added in comments to the Journal. That led to a surge in companies buying work vehicles at a low cost, he added. But now that those businesses have newer models, they’re not expected to make those purchases again this year, the report stated.
Companies Working to Avoid Deeper Discounts
The Journal analysis added car companies have been trying to resist deepening discounts to sell down unsold car-inventory, having spent an average of $3,720 per vehicle in January to incentivize sales, down $140 from the same year-ago month and representing the seventh consecutive month spending has fallen year-over-year, according to J.D. Power.