Import Volume Drives April U.S. Inventory to 11-Year High

U.S. light-vehicle inventory in April rose to an 11-year high for the month, even increasing 1.7% from March, when typically the month-to-month volume remains flat or declines.

The rise could mean U.S. sales did not meet manufacturers’ expectations over the past two months when the seasonally adjusted annual rate weakened compared with levels achieved since third-quarter 2015. If that is the case, any inventory culling likely will be more with overseas-built vehicles, as import inventory hit its highest monthly total in 27 years.

The higher inventory also could mean the industry is girding for some strong months ahead and sales levels will return to the 17.6 million-unit SAAR they paced at from July 2015 through February.

April inventory totaled 3.89 million units, compared with 3.82 million in March, and was 8.1% above like-2015. Days’ supply increased to 70 from 65 in both March and April 2015 and for the second straight month was the highest since the recession year of 2009.

Another sign inventory could be somewhat bloated is that compared to most years, May will not require as much stock to meet demand, because its sales period is shortened by its first weekend being included in April’s results. Initial modeling puts May’s SAAR at a solid 17.3 million units, less than 2% below like-2015’s 17.6 million, but even if the month’s SAAR matches last year, raw volume will fall a significant amount. June and July, however, will be high-volume months, and extra inventory could be lopped off then, especially if SAARs return to their recent strength.

Partly responsible for the long-time high inventory is a buildup of domestically produced trucks, including the Ford F-Super Duty pickup – undergoing a major changeover in the third quarter – and for some CUVs in advance of early-tooling shutdowns occurring in Q2 at some plants. Together, the buildup is estimated to have added two days to April’s 73 days’ supply of domestic trucks. Conversely, the tooling shutdowns are likely to shave two days off May’s total.

Domestic car inventory is getting more in line with sagging demand, but production levels are expected to remain weak, as sales penetration of the vehicles is forecast to continue with record-low rates the remainder of the year.

April inventory of domestic cars dropped from March to 1.14 million units, 10.1% below year-ago. Days’ supply increased to 69 from March’s 63 – a typical increase for this time of year – and was flat with year-ago. Despite sliding demand for cars, there are some key domestically-made products in short supply, including the Chevrolet Cruze and Malibu and Honda Civic – all newly redesigned.

Exacerbating the Cruze and Malibu constraints are temporary assembly line stoppages in April and May due to parts shortages caused by an earthquake in Japan. They are not the only GM vehicles disrupted by the quake and it is estimated the automaker will lose 33,000 units of production, about half of it in May.

Imports are the primary reason inventory was pushed upward in April, although mainly because sales, especially of trucks, are doing well.

With year-to-date sales through April up 6.9%, import LVs are running at 4-year high sales penetration so far in 2016 compared to domestically made LVs, which declined year-over-year for the second straight month in April, though remain up 2.2% year-to-date.

Dealer import stocks ended April totaling 807,000 units, highest for any month since May 1989. The surge mostly is attributable to CUVs, up 66% from April 2015, with luxury versions nearly double year-ago totals.

Import stocks ended April with a 66-days’ supply, up from March’s 60 and same-month 2015’s 56. It was the highest import days’ supply for April since 2009. Cars and trucks each were at longtime peaks for days’ supply, but cars (70 days) were significantly higher than the optimal mid-50s, while trucks (62 days) were much closer.

The higher import-car days’ supply is fueled by a 23.5% year-over-year rise in the Small Car segment’s inventory, which is somewhat justified. The segment, in spite of the overall market for cars, posted an April sales gain of 5.8% and is up 1.9% year-to-date. Plus, Q2 typically is a strong time of the year for small cars in both volume and market share.

By comparison, to-date sales of domestically made small cars are down 9.4% with only two models in the segment, the Civic and Nissan Sentra, sporting gains. But, thanks to slowed production lines, inventory for domestically made versions largely is in line with demand.

Import sales in the rest of the car segments combined are down 19.5% year-to-date and are the likely sectors targeted for inventory paring.

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