Inventory Glut

Reeling after an anticipated third-quarter loss of $1.5 billion and squirming under the hot spotlight of a new cost-cutting initiative, Chrysler Group admits its vehicle stocks were higher than reported.

A pool of unsold vehicles in July and August went unreported in the auto maker's figures under a little-used practice for counting inventory, Ward's uncovers, indicating Chrysler's overall market picture was bleaker than the industry was led to believe.

Soaring gasoline prices and the resulting negative impact on pickup and SUV deliveries was blamed for Chrysler's poor sales in the period.

During the two months, the auto maker continued to run production, building a “bank” of up to 100,000 unsold vehicles that were not counted as inventory, a spokesman confirms.

Ward's data shows the pool of unsold vehicles dropped to an estimated 77,000 at the end of August, enough to push Chrysler's stockpile over 575,000 units when added to the auto maker's reported inventory.

According to a practice adopted by Chrysler about two years ago, these vehicles were being held in abeyance until dealer orders prompted their release. This practice, which reprises a strategy that has repeatedly plagued the auto maker in decades past, is being curtailed, the spokesman tells Ward's.

“We won't do it again at the level we were doing it over the past couple of years,” he says, adding the auto maker's bank of extra inventory sat at just under 50,000 units in October and should be “virtually” eliminated by year's end.

At the end of September, Chrysler's reported inventory approached 529,000.

Chrysler says stockpiling unsold vehicles is common, but competitors say otherwise.

“Absolutely false,” says George Pipas, Ford Motor Co. U.S. sales analysis manager.