I read an article in the Wall Street Journal about how luxury car makers are struggling to sell their cars now that the economies in America and abroad are struggling. Now that large amounts of credit are not available, dealers are maintaining their inventories for a longer period of time.
A year ago, a Lexus LS sedan typically sat on the lot for 21 days before it was sold. Now, that number has increased to 62. And a BMW 3-series sat on the lot an average of 28 days a year ago. Now, the average 3-Series sits unsold for 49 days. So what changes will the automakers undergo in order to maintain the growing levels of inventory?
Most say that they plan to ride out the storm. There is an underlying belief that the economies will rebound and sales will increase again. In addition, some companies plan to alter marketing strategies, etc. in order to target customers differently.
But, BMW is planning to slow its production at its North America plant in order to ship less cars to dealerships. In other words, BMW is changing its production rate in order to move with the demand rate. While some businesses will build up large inventories during the economic downturn, BMW is attempting to maintain steady inventories. This makes sense as a strategy for BMW because if indeed demand does increase, they will easily be able to ramp up production because of the excess plant capacity they have.
The article can be found at:
http://online.wsj.com/article/SB122443910753248171.html
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It is not just luxury car makers that are struggling. The US automobile market is down and has been declining all year. The Toyota truck plant in San Antonio stopped production for over a month because of high inventories. Hyundai had to work less, earlier in the year b/c of high inventories, Mercedes has been working 4 day weeks and have just announced cutting 2nd shift production for 1 of there vance lines for the entire first quarter of next year. Honda of Alabama is running at less than capacity and despite launching a full model change of the Pilot and bringing the Ridgeline down from Canada (ridgeline production would be halted for a little over a month) has cnacelled its earlier planned production Saturdays. While the reason for not buying Luxury may be credit that is not available, people simply are not buying vehicles. This is not just a US problem, as declines have been a global issue, Daimler announced the other day that it was reducing production in some 14 facilities overseas. I think that a larger problem is the uncertainty with the economies making customers hold off on making big purchases.
Jason
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