Can the Auto Industry Still Sell All Its Cars?

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Ford and its U.S. dealers had an unsold inventory of 215,000 F-Series pickups (BusinessWeek.com, 4/19/06) as of July 1, representing a 133-day supply at the current selling rate, according to the Automotive News Data Center. The industry benchmark is a 60-day supply.

Despite a "You Pay What We Pay" employee-pricing discount on the F-Series, sales of the full-size pickup fell 40.5% in June from the year-ago month. In response, Ford took the rare step of postponing the launch of its new-generation 2009 F-Series by at least two months until late summer, to give dealers more time to clear their lots of leftover 2008s.

Feeling for the Bottom

"It's clear the automotive consumer is under a lot of pressure and stress. How it's manifesting itself is uncertainty to big purchases," said Jim Farley, Ford's group vice-president, marketing and communications.

"We think this is going to persist for many months to come, possibly longer. It's difficult for us to say whether the economy has reached a low point, but we obviously don't expect significant improvement," he said in a July 1 conference call.

Even Toyota Motor (TM) is feeling the pinch. It announced on July 10 that it would suspend production of its full-size Tundra pickup (BusinessWeek.com, 1/30/07) and Sequoia SUV (BusinessWeek.com, 1/15/08) from Aug. 8 through early November, but with no layoffs. In the first half of 2008, U.S. Tundra sales were down 7.6% from the year-ago period, to 76,516. In June, Tundra sales were down 52.9%, to 10,238.

Starting in the spring of 2009, Toyota will stop building the Tundra in a plant in Indiana and will consolidate production in a Texas factory that's already building the Tundra. Starting in late 2010, the company also announced it would start building the hybrid Prius (BusinessWeek.com, 6/6/08) in the U.S., at a plant under construction in Mississippi.

Don't Keep On Truckin'

If there's a silver lining for the auto industry in the present downturn, it's that with notable exceptions, the automakers are cutting production rather than swamping dealers or rent-a-car companies with inventory. The latter was standard operating procedure in earlier downturns, even though the automakers shoot themselves in the foot when they swamp dealers with inventory. Too much supply drives down new-car prices, which hurts both the brand's reputation and the resale value of used cars.

Despite this year's slumping sales, the U.S. industry had a moderate 61-day supply as of June 1, Automotive News said. But that average includes a fat 90-day supply of trucks, and a skinny 41-day supply of cars.

"It's the haves and have-nots," said Ford's Farley. "Dealers tell us they want a lot more of these, and not a lot more of those," he said.

The dealers want cars and crossover vehicles, especially with four-cylinder engines. "You have dealers screaming for any type of four-cylinder product from us," Farley said.

What the dealers don't want are trucks, especially full-size pickups and SUVs. "We have areas in the country where we have a lot of pickup truck inventory," Farley said. Even more ticklish, demand for small fuel-efficient cars and hybrids is outrunning supply. For example, Toyota recently said it had only a one-day supply of Prius, meaning the car is essentially sold out with a waiting list, and Ford is adding production for its Focus.

But autumn is just around the corner, and with it comes delivery of 2009 models. There may be fewer trucks and SUVs and, with any luck, more fuel-efficient cars. But with their arrival, the 2008s may be harder than ever to move. If they linger on well into next year, they may not sell at all.

Click through BusinessWeek.com's slide show to see which are the worst-selling cars for the first half of 2008.

Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.