Thinner lots amid crises a plus for GM, dealers

DETROIT — General Motors has spent the past year playing catch-up on production, hamstrung by the 40-day UAW strike last fall and the industry's two-month coronavirus shutdown in the spring. But tight inventories have come with silver linings: high dealer margins as customers pay closer to sticker price, reduced carrying costs and a record profit in North America for GM last quarter.

It still has more ground to make up, but long term, GM doesn't plan to replenish supplies to the level that dealers had long been accustomed to having on their lots.

"This has really taught us how we can — if we have the right products — turn it, sell it and actually be profitable selling new vehicles again," said Charlie Gilchrist, president of Gilchrist Automotive in Texas. "It's almost a blessing in disguise for us."

Dealers don't miss the days of vehicles sitting on their lots for months, though they still are desperate for more pickups, SUVs and other highly profitable, fast- turning vehicles.

GM doesn't anticipate returning to its pre-pandemic inventory of around 800,000 vehicles. Even the scenario it laid out in late July — 600,000 by year end — appears out of reach as vehicles sell within a few days of arriving at dealerships, GM officials said this month.

"There's a real opportunity to improve our business and improve the way we work with the dealers — having the right stock, reducing complexity, making it simpler and providing an overall better customer experience," GM CEO Mary Barra said. "And that's what we're committed to do."

Before the strike and the pandemic, Maroone USA's Chevrolet stores in Colorado and Florida had between 90 and 100 days' worth of inventory. Today they have about half that.

"We're at a year now of shortages of inventory with GM. It's a very, very tough situation," said Mike Maroone, the dealership group's CEO. "Would I be OK running GM at a 60-day supply or a 70-day supply? Absolutely. Could we run it at a 40- or 45-day supply? I don't think so."The store's pickups, including the Chevrolet Colorado, Silverado 1500 and Silverado 2500, generally sell in less than 20 days. "They are way too tight. There are other lines that are slower turn that [a revised inventory target] would work just fine with," Maroone said.

The pandemic forced automakers to rationalize the mix and complexity of their inventory, said Matthew Racho, managing director of vehicle configuration analytics at J.D. Power. GM has said that, as part of a long-term savings strategy, it will offer fewer configurations and reuse and share more parts across brands and segments.

"The issue is: Make the best choice around what the customers are willing to pay for and what's going to get the dealers the right amount of profit," Racho said.

Industrywide for the 2020 model year, there are more than 72,000 full-size, light-duty pickup configurations, and a third of that volume is faster-turning and more profitable than average, according to J.D. Power. Another third turns quickly but with below-average profitability, and 17 percent sits on the lot longer but generates more profit.

"We look for what's the right, sustainable mix of complexity and profitability," Racho said. "This will drive your ability to conquest customers. It will drive the effect of influencing your residuals or your customer retention down the road. If you just focus on fast-turning vehicles, you really risk throwing the baby out with the bathwater."

GM is not the only automaker using this year as an opportunity to keep inventory levels lower.

"I don't think our dealers want to go back to historic inventory levels," Fiat Chrysler Automobiles CEO Mike Manley said on the company's Oct. 28 earnings call. "What I think we see now is somewhat closer to the new normal of inventory levels that I sincerely hope it is."

Inder Dosanjh, dealer principal at Dosanjh Family Auto Group in the San Francisco Bay area, hopes to never return to pre-pandemic inventory levels. His group's margins have been higher than ever, and he's saving money on floorplan costs, inventory insurance and storage. Before the pandemic and the strike, some of his inventory would stay on the lot for 90 days or more. Today, vehicles on his lots stick around for about 25 days on average. High-demand models arrive with a buyer lined up.

"Building the right truck is really crucial," he said. "If you build the wrong car, it won't sell. When we look at these cars and pickup trucks, they all look like they come from the toy shop — the colors, the wheels, interior."

There is a fine line between too much and too little inventory, said Casey Best, general manager at Capital Chevrolet in Wake Forest, N.C. Many customers come to his dealership because they need a vehicle soon and can't wait two or three months for one, he said.

"If we don't have a vehicle here to sell them, I think you risk losing that customer," he said. "Lower inventory levels are a good thing. But at the same time, you've got to make sure that the pipeline coming from the factory is on a more constant basis."

Despite GM's lower targets, many dealers continue to grapple with insufficient inventory. They're still waiting to see what the new normal will be.

"It's fine if they say, 'We are going from 90 to 75, or we are going from X to Y.' But when will we get there?" Maroone said. "I'm not sure anybody really knows that answer."