DETROIT (AP) — Late last month, David Kelleher had 412 unsold new cars and trucks at his Chrysler-Jeep-Dodge-Ram dealership southwest of Philadelphia. He would have been more comfortable with about 40 less.
It’s a similar scene at other dealers, with cars parked in spaces that were previously vacant.
The auto industry hopes this year to sell more than 16 million cars for the first time since 2007. So, the question for automakers is whether numbers like Kelleher’s simply reflect a bad winter or hint at trouble ahead. For many car buyers they signal something better: deals.
Kelleher, who had to close his showroom for five days due to storms, expects February sales declined but is confident that buyers will return once temperatures rise. Industry analysts note that warmer-weather dealerships fared well over the winter.
But others see signs of the habits that got Detroit into financial trouble five years ago – producing too many cars and trucks, and losing money with hefty discounts to move them off lots.
Kelleher’s inventory was enough to meet demand for 94 days. Normally he likes to have an 85-day supply. Stocks are growing across the nation, too. At the end of January, dealers had an 89-day supply, the highest in five years, according to Ward’s AutoInfoBank. Detroit automakers had the most, with General Motors at 114 days, followed by Ford at 107 and Chrysler at 105.
To unload the inventory, automakers are offering more discounts. That means deals for consumers. Incentives are the highest they’ve been in three years, averaging $2,633 per vehicle in February, according to the TrueCar.com auto pricing site. They’re up more than 5 percent over a year ago, TrueCar said.
GM raised discounts on some Chevrolet Silverado pickup trucks to more than $7,000 last month. Ford offered $3,250 on some 2014 F-150s and up to $8,250 on 2013 models. GM also discounted its slow-selling Chevy Malibu and the Cruze compact, while Ford discounted the midsize Fusion, and Chrysler offered deals on the compact Dart.
“If you can fight the weather, it’s a good time to get out there,” said Jeff Schuster, senior vice president of auto sales forecasting for the LMC consulting firm. “You’re likely to see more deals now than toward the end of the year.”
At Jeff Wyler Chevrolet in Canal Winchester, Ohio, near Columbus, General Sales Manager Ed Bressler says his staff is tempting consumers to brave the elements.
They’re calling potential buyers and dangling higher trade-in offers and no-cost additional features. Even so, February sales are slightly behind last year.
“They’re not going to come naturally. Not in weather like this,” he said.
Indications are that incentives could rise this month. GM told dealers last week it will offer Chevrolet customers the same discounts it gives to parts suppliers. That’s usually the dealer invoice price plus shipping and a $150 fee. The discounts would apply to the whole Chevrolet lineup except the Corvette and SS muscle car.
For automakers, “the danger is that this could be the beginning of an escalating arms race for market share,” said Eric Lyman, a vice president at Automotive Lease Guide, which tracks car prices.
The growing inventories were caused in part by a 3 percent sales drop in January. Automakers report February sales on Monday.
For Kelleher, February started with an ice-and-snow storm that knocked out power for three days. His staff couldn’t call potential customers or follow Internet leads, and no one ventured onto his lot in Glen Mills, Pa. Then a 15-inch snowstorm shut him down two more days. Of 24 sales days, Kelleher’s business was open for 19.
“We continue to have big days when we’re open,” he said. “But it’s pretty tough to make up for five full days.”
LMC initially predicted a 3 percent February sales increase over a year ago, but last week dropped it to just 1 percent because of the weather. TrueCar expects only a slight increase.
Schuster is in the camp that says sales are enduring a “weather distraction,” where consumers are just waiting for the cold to end before making big purchases. “Economy and other drivers are still positive, so we do view it as temporary.”
Schuster isn’t changing his forecast for 16.2 million in total U.S. sales this year, up 4 percent from last year.
Kelleher says he’s not alarmed by higher inventory on his lot, or across the country. There are fewer Chrysler dealers than there were before the Great Recession, yet sales have grown to near pre-recession levels. So the remaining dealers need to stock more to meet increased demand, he said.