Experts: GM aims to ward off a surplus of trucks

General Motors' plan to idle its full-size pickup factory in Indiana next month suggests the automaker is trying to avoid returning to days of stockpiling vehicles on dealership lots, analysts said this week.

Halting production at Fort Wayne Assembly, which builds the light-duty Chevrolet Silverado and GMC Sierra pickups, for two weeks starting March 27 does not mean demand for the trucks is softening, industry analysts told Automotive News. Instead, they said, the automaker appears to be working to maintain higher prices and profitability even as it increases supply after two years of parts shortages curtailed production and inventory levels.

"I think that what we're really seeing in some ways is automakers sort of changing [their] approach a little bit and trying to keep inventory lower than they have in the past," said Stephanie Brinley, associate director, auto intelligence for S&P Global Mobility.

GM spokesperson Dan Flores said in a statement last week that the Fort Wayne plant's downtime is "an effort to maintain optimal inventory levels with our dealerships."

"Our production is up over the past month while demand remains fairly consistent, leading to an increase in inventory," Flores said. "Therefore, as we stated on our earnings call, we are going to proactively manage inventory levels, including plant downtime."

Maintaining a 90-day supply of vehicles is not the goal anymore, Brinley said. Instead, automakers are looking to increase days' supply from the steep lows the ongoing semiconductor shortage has produced, while not building so many that they're "swimming in cars."

"Automakers have learned that it's typically now better to let [the] Fort Wayne plant be down for two weeks and manage your inventory than it is to keep running flat-out and keep producing and put an incentive on the end," she said.

GM CFO Paul Jacobson told analysts on the automaker's fourth-quarter earnings call in January that GM ended 2022 with a roughly 50-day supply of dealership inventory, including in-transit vehicles. GM aims to have a 50- to 60-day supply at the end of 2023, which would be 20 to 30 days below mid-2019 levels, assuming logistics challenges continue to ease, he said.

"We're committed to actively managing production levels to balance supply with demand," Jacobson said on the call.

"Within this portfolio target, trucks are expected to run at higher levels, reflecting greater customer-driven variation requirements, and sedans and SUVs are expected to run at this range or lower," Jacobson added. "Throughout the year, sales seasonality, production schedules and timing of fleet deliveries may take us out of this range from time to time, but that is the targeted range at which we'll manage."

Keith McCluskey, CEO of McCluskey Chevrolet in Cincinnati, said Silverado supplies have reached a balanced level, with his days' supply running at about 45 to 60 days, up from about 15 to 20 days at the height of the chip crisis. Idling the plant, he said, is "the right thing to do to just, again, keep a healthy balance on supply and demand and inventory levels."

Cox Automotive estimated that the Sierra has more than an 80-day supply, while inventory levels top 100 days for the Silverado. GM said those and other third-party estimates are too high, but the company wouldn't disclose more precise figures for competitive reasons.

"We have a very manageable level of inventory," said GM spokesperson Jim Cain. "We're trying to keep it at an optimal range to support strong pricing."

GM also builds heavy-duty Silverado and Sierra pickups in Flint, Mich.; light- and heavy-duty versions of the Silverado in Oshawa, Ont., in Canada; and light-duty Chevy and GMC full-size pickups at its Silao plant in Mexico. All four plants typically operate on three shifts, Flores said.

Analysts said demand has not softened yet for large pickups, though concerns about the economy, higher interest rates and vehicle affordability could dent demand this year.

Sales tend to be slower in the early months of the year, and pickup sales also correlate to housing starts, which are down, said Michelle Krebs, an executive analyst with Cox Automotive.

GM's move signals interest in preserving the elevated average transaction prices and profits on its full-size pickups that the industry has experienced while supplies were low in recent years, Krebs said.

The automaker has said its gasoline-powered full-size pickups are helping to fund its transition to electric vehicles.

GM has said, " 'We don't want to overproduce these vehicles and make it a situation where we do have to heavily discount them,' " said Jessica Caldwell, executive director of insights for Edmunds. "At this point, they are holding to what they said, but time will tell if that will carry on."