Chrysler’s Shadow Inventory Fading Away

Chrysler Group attempts to get the inventory monkey off its back by revealing, for the first time since its stash of unsold vehicles was exposed in October, a ballpark-number report on its status.

Chrysler, which had seen its so-called “sales bank” of “unassigned vehicles” balloon to 100,000, says that number was reduced by more than 90% as of Dec. 31.

“Inventory, overall, is down a full 10%, or 58,000 units, over December (2005),” Steven Landry, vice president-sales and field operations, says during a teleconference to discuss the auto maker’s latest U.S. sales results.

Chrysler’s December deliveries rose 4.4%, vs. like-2005, while full-year sales declined 7%.

“Also in December, Tom LaSorda (Chrysler president and CEO) said that we would bring our overall inventory of unassigned vehicles back to historic normal levels – in the low 5-digit figures,” Landry says. “Today, we are able to say that we’ve exceeded that goal and the number of unassigned vehicles is below 10,000 units at the end of 2006.

“We’ve actually brought two important goals into frame,” he adds. “One was to reduce the dealer inventory…and also reduce our unassigned inventory to below 10,000.”

Questions about excess inventory have dogged the auto maker since Ward’s revealed Chrysler was not including the stockpile in its monthly sales reports. Until Landry’s teleconference, Chrysler steadfastly refused to provide specific information about the status of its sales bank.

However, Ward’s was able to track the totals by contrasting production and sales data. Ward’s estimates show Chrysler’s sales bank began a steady decline from its mid-August peak, thanks to production cuts and some aggressive sales maneuvers.

Chrysler pinning hopes on Jeep Patriot.

By the end of August, Ward’s estimates the total stood at 77,000. By Sept. 30, it had been reduced to just under 50,000.

The following month saw the sales bank decline by more than half to about 22,000. And by the end of November, the total approached Chrysler’s target of 10,000.

The auto maker had been supplementing its production schedule with vehicles for which there were no dealer orders. These vehicles were then held in abeyance until the anticipated demand was realize, resulting in a huge stockpile.

As gasoline prices soared, the market softened and traffic to Chrysler’s truck-heavy showrooms was choked off. But the auto maker failed to dial back its production until the excess inventory – reported and unreported – swelled beyond manageable levels.

This contributed to a damaging third-quarter loss of $1.5 billion and the departure of global sales chief, Joe Eberhardt, whose relationship with dealers grew hostile.

LaSorda told Ward’s previously he didn’t want to enter 2007 “debating on inventory and this or that. There’s been so much written…that’s something I’m not going to talk about.”

Chrysler has not said it will discontinue the practice of stockpiling vehicles on spec, a strategy eschewed by other auto makers. But it does say it will monitor future levels more closely.

LaSorda tells a teleconference on the auto maker’s global sales picture that he is comfortable with a sub-10,000-unit sales bank.

A Chrysler spokesman says the company hopes Landry’s landmark disclosure lays the issue to rest.

Full-year sales results reflected Chrysler’s troubles. Each of its brands suffered declines, with Dodge, Chrysler and Jeep deliveries falling 9%, 7% and 3%, respectively.

But December brought high points. A surge in Chrysler 300 sedan sales which, coupled with the growing availability of the re-engineered Sebring midsize sedan and the new Aspen fullsize SUV, boosted the auto maker’s core-brand deliveries 11%.

Dodge sales rose 9% on the strength of demand for the Ram pickup and Charger sedan.

Jeep sales slipped 10%, but the auto maker is confident things will turn around as the brand benefits from a continuing stream of new products. A diesel-powered Grand Cherokee midsize SUV makes its way to dealers in March, while the new Patriot cross/utility vehicle is arriving now.

“We are genuinely really excited about what the Patriot will do,” Michael Manley, vice president-sales strategy and dealer operations, says.

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