U.S. Light-Vehicle Inventory in Good Stead Heading into 2018

U.S. automakers are heading into 2018 with inventory the most closely in line with demand since the end of 2016.

Production cuts and a surge in sales over the last four months of 2017 – when the seasonally adjusted annual rate averaged 17.9 million units – knocked the excess off dealer lots that had built up over the first eight months of the year.

Dealer inventory totaled 3.74 million units at the end of December, 3.4% below same-month 2016’s 3.87 million. The Dec. 31 level is well-balanced to the 17 million-unit seasonally adjusted annual rate WardsAuto expects for first-quarter 2018.

With North American production expected to decline 5.5% year-over-year in Q1, and import shipments estimated to remain relatively flat, inventory will stay well-tuned during January-March.

Even with the production cuts, there still will be a lot pressure beyond Q1 to keep overall inventory in line with demand if, as forecast, sales for entire-2018 declines from 2017.

A danger could be that if sales begin to taper off from Q1, which they are expected to do, over-optimism about underlying demand could lead to production overbuilds as happened in first-half 2017, lifting inventory to excessive levels.

Furthermore, the Q1 SAAR likely will finish below year-ago’s 17.1 million units, but an additional sales day in January, and an extra weekend in March, compared with last year, could push raw volume above 2017’s 3-month total, helping induce some false optimism. The higher volumes would be offset later in the year in months which have fewer selling days vs. 2017.

A preliminary estimate for January indicates a 17.2 million-unit SAAR, slightly down from year-ago’s 17.3 million.

Keeping inventory in balance means continued hefty production cuts for cars, as their market share continues to slide in favor of trucks. In fact, cars are sure to fall below 30% of the market in certain months – likely in the latter half – in 2018 for the first time since World War II.

However, although not yet a red flag, truck inventory ended December a little higher than expected. Truck stocks went into January totaling 2.41 million units, 7.7% above the year-ago total.

The best sector to watch for signs of excessive truck inventory will be CUVs, the biggest U.S. segment group and growing.

Automakers are steadily increasing their CUV offerings, which is good for dealers because that means more availability of the kind of vehicles consumers want. But with industry sales declining, and more CUV models coming into the market, there is a danger the industry will go too far and overload dealer lots with the vehicles.

Dealers ended December with 1.26 million CUVs in stock, 12.6% above year-ago. Dec. 31 days’ supply of 55 was above like-2016’s 51 and highest for the month since 61 in 2005. A healthy days’ supply for CUVs at the end of March is in the low 60s, compared with 65 for all LVs.

LV days’ supply ended December at 63, well below the prior month’s 71 and slightly above like-2016’s 62.

Inventory of North American-built LVs totaled 2.94 million units, 4.2% below year-ago. Days’ supply was 64, same as like-2016. Import stocks totaled 792,714 units, nearly flat with year-ago. Days’ supply was 57, compared with 56 the year before.

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