RPT-Big pickups clog US dealer lots, concern analysts

Fri Jul 8, 2011 7:00am EDT

(Repeats story sent July 7, with no changes)

* Industry avg full-size pickup supply at 99 days

* Analysts, executives typically prefer 80 days

* Incentives could rise if demand doesn't pick up

By Bernie Woodall and Ben Klayman

DETROIT, July 7 (Reuters) - Big pickup trucks are clogging many U.S. dealer lots, causing headaches for General Motors Co (GM.N) and other automakers, and raising concerns about price wars and lower profits later in the year.

GM has garnered much of the attention for its inventory of Chevrolet Silverado and GMC Sierra full-size trucks that stood at 122 days at the end of June. That's about 50 percent higher than the 80 days typically preferred and above the industry's still-hefty average of 99 days, according to Ward's Auto.

Chrysler Group LLC and Toyota Motor Corp (7203.T) also lag at 93 days supply, while Ford Motor Co (F.N) stood at 79, Ward's said.

"Clearly most manufacturers overestimated the kind of demand we were going to get for full-size trucks in the first half," said analyst Jesse Toprak with online car-buying research website TrueCar.

"Do we have high inventory levels for full-size trucks? Yes. Is it a major issue? It's not at crisis level, but it's above healthy levels," he said on Thursday.

What makes analysts and industry officials most nervous is whether the U.S. economy will depress the usual surge in demand in the second-half. If buyers don't show, heftier incentives could result -- especially from GM -- and drag down profits.

"That is what we would like to know," Richard Bame, Toyota's national marketing manager for trucks, said of fears of higher incentives later in the year.

"We thought Ford was showing some pretty good restraint," he added. "But we haven't seen so much of that from General Motors and Chrysler."

Buyer incentives for full-sized pickup trucks are $5,350 per sale for the Sierra, $4,880 for the Silverado, $4,450 for Chrysler's Dodge Ram, $3,750 for Ford's F-Series and $2,654 for the Toyota Tundra, TrueCar said.

GM raises the most concern with the high number of trucks on its dealer lots.

"If demand doesn't come back in the second half, that means fire sale come December," Toprak said of the risk to GM. On the flip side, if demand does rebound, the company will be sitting pretty with lots of trucks to offer, he added.

Buckingham Research analyst Joseph Amaturo already believes GM will boost its deals, increasing incentive spending by September by about $700 per vehicle. That would match levels seen in January and February, when the No. 1 U.S. automaker was heavily criticized for being too generous.

Higher incentives by GM would force its rivals to respond to keep up, hurting everyone's profits, analysts said.

GM officials have tried to assure Wall Street that its inventories are not out of control, and will fall to between 100 and 110 days by year end.

Don Johnson, GM's U.S. sales chief, said on Friday that a production stoppage for two weeks in July at the company's pickup truck plants and a pickup in second-half sales will help lower the inventory level. He also said GM will not get aggressive with incentives.

Johnson said GM sells a larger share of its pickup trucks to retail customers than Ford, requiring a broader range of trucks on hand to satisfy buyers' various needs in a segment where prices can range from the low-$20,000s to the high $40,000s.

The different cab sizes and bed lengths, and engine types in pickups demand a higher inventory to ensure a potential customer does not walk away, industry executives said.

Officials at Chrysler, which is managed by Italy's Fiat FIA.MI, and Toyota said they were satisfied with their inventory levels as well. "We're not in a bad place," Toyota's Bame said on Thursday.

However, analysts are concerned because the costs associated with building the big pickups are higher than cars and it is more expensive for dealers to maintain those inventories on their lots. Toprak is worried especially that GM will have to offer financial aid to dealers if the trucks sit too long.

While fuel-efficient cars are getting a lot of attention with the high gasoline prices, it is still big pickups that generate big profits. Toprak estimated automakers net $5,000 to $6,000 per truck.

Analysts fear a big hit to GM's finances. Amaturo said on Thursday Buckingham Research expects GM's third-quarter truck production to be 65,000 lower than the second quarter, "which would suggest a loss of $520 million in profits", assuming $8,000 per vehicle profit margin.

In the end, analysts fear they have seen this story before. "The concern is that it looks more like the old GM again," IHS Automotive analyst Tracy Handler said. (Editing by Carol Bishopric)