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Are Auto Dealership Lots Getting Too Crowded?

A Kia sales lot in Sarasota, Florida on Nov. 23

Photograph by Robert Schlesinger/AP Photo

A Kia sales lot in Sarasota, Florida on Nov. 23

Auto-industry watchers are eagerly awaiting Tuesday’s data on November sales to find out if dealers have been overstocking their lots. Heading into November, dealers had 76 days’ worth of inventories, the highest level for the end-of-October period since 2005.

Having lots of cars and light trucks on the lot can juice sales, because shoppers who find what they want are more likely to buy. But there’s a heavy carrying cost to all that metal. If the November figures show that inventories have continued to swell, automakers may decide to cut back production and dealers may slash prices.

Jeff Schuster, an analyst with LMC Automotive, told Bloomberg News that until now the industry has tightly managed inventory. “If you change that scenario around,” he said, “the question is: Does the discipline that we’ve seen the industry operate with lately stick around?”

But Kevin Tynan, senior automotive analyst for Bloomberg Industries, told me he doesn’t expect bargaining to return: “I don’t see all that price discipline we’ve seen since 2009 being thrown out the window.” The days-of-inventory figure fluctuates a lot, Tynan said, and it could be right back to normal with one good month of sales.

“The usual seasonal pattern for vehicle sales is a summer and year-end surge driven by incentive programs, with lulls between these gains,” noted Action Economics, a consultancy in Boulder, Colo. “But the automakers have attempted to reduce the size of these incentives over the last couple years.”

The partial government shutdown in October probably accounted for two days of the October supply spike that month, according to WardsAuto. “The excess will be alleviated in November, when most of the lost sales are recouped,” WardsAuto said.

Auto sales are crucial for the overall U.S. economy because the auto industry makes up nearly one-quarter of overall retail sales, according to Action Economics. The median estimate of economists surveyed by Bloomberg is that cars and light trucks sold at a seasonally adjusted annual rate of 15.8 million in the U.S. in November, up from 15.15 million in October.

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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