Bloated 2004 Inventories Should Trim Down

If forecasts for the rest of 2004 prove correct, the industry's bloated inventories should shrink to more appropriate levels this fall.

Ward's forecasts sales to end the year at 17 million units — 17.4 million including medium- and heavy-duty trucks — 2.4% above 2003 results, and the third time in the last five years they will hit the 17 million mark.

Including this year's forecast, sales will have averaged 17 million units over the past six years, never having reached 15 million over any prior 6-year stretch.

As a result, there is little in the way of pent-up demand.

Ever since auto makers flood the market with post 9/11 0% financing programs and big rebates, the industry has seen sales surge in the third quarter on a seasonally adjusted annual basis.

This year should be no different, as auto makers prepare for the official start of the new model year by clearing out excess inventory caused by overly aggressive production schedules and imports.

Because sales remain at historic highs, it's not surprising inventory levels also are at all-time highs, with records set in each month this year and inventories topping 4-million units for the first time ever in February.

But stocks are higher than necessary. Ward's forecasts inventory at the end of the third quarter at 3.5 million units, which would be the highest ever for September. But minor production schedule tweaking should keep Sept. 30 inventory levels manageable — if fourth-quarter demand is stronger than a year ago.