“Davidson” submits:
Domestic Auto Inventories remain quite depressed. Dealers have maintained low inventories, by my analysis, due to the prolonged period of recession forecasts the last 30mos+. We first saw retailers proactively lower inventories in the 2016-2019 timeframe with the persistent recession forecasts of that period. This time the combination of uneven supply chain issues with negative forecasts the last 30mos coupled with higher interest rates and conservative lending has held the Light Weight Vehicle SAAR(Seasonally Adjusted Annual Rate) below 16mil till the last 3mos. That US manufacturers have inventories well in excess vs sales, Ford and GM have models with more than 100days of inventory at their current sales pace, the current inventories based on sales is deceiving. Sales remain well below normal and the EV(Electric Vehicle) inventories are soaring as consumers do not want them. Toyota with the 2nd largest seller has only 30days of inventory with most vehicles pre-sold as ICEs(Internal Combustion Engine vehicles). Toyota has not pushed EVs as others have done. The normal course of business has been to have 60dys+ of the monthly sales pace which registers as 1.05mil-1.2mil vehicle inventory for a SAAR of 17.5Mil. This had been the dealer model in the pre-COVID as consumers liked to ‘kick the tires’, sit in the actual vehicle, do a test drive and smell the ‘newness’ with inventory 5x+ more than we have today.
The rise in the Durable Goods Orders for Motor Vehicles and Parts is in line with more parts for used vehicles than new. The Manheim Used Vehicle Index attests that demand remains elevated. The Manheim Index reflects the demand for ICEs as EVs have yet to develop a used vehicle market.
The Dec vehicle SAAR was recently updated by several industry data sources to 16.8Mil. In normal times, this would spur building for expanded inventory with a positive sales outlook. But we have been through some very trying times both COVID and post-COVID and dealers show a reluctance to extend inventories lest they be proved wrong on sentiment and suffer the consequences of a slowdown.
My own view remains positive. Construction of fascilities for data, power, manufacturing continue at record levels driven by the supply-chain-reshoring narrative that appears to have several years to play out. The US$ has soared to record highs as global capital pools in the US due to this narrative. Thus far the manufacturing PMI remains highly pessimistic even with IndPro holding near all time highs.
Follow through by the new adminsitration to improve the US trade balance using tariffs to combat tariffs long used against US products is positive for expanded production. What matters most is not the tariffs rising here but forcing each country into balance and righting the decades of imbalance the US has suffered with trading partners. The net/net should be lower tariffs globally if trading partners move to what is good for all concerned, not the US having literally no tariffs vs barriers everywhere else.
Fairer trade globally will mean more manufacturing domestically and we will need more vehicles to get employees to where those facilities are located. If dealers resort back towards higher inventories then we will see a nice addition to GDP.