U.S. sales fell in the first four months, and automakers will stop production and reduce inventory

According to foreign media reports, American auto workers are expected to get a longer vacation during this year's Independence Day. However, for them, this is not something to celebrate. American automakers usually shut down factories in July to perform equipment maintenance and inventory, which lasts for one to two weeks.

In recent years, driven by the surge in US auto sales, most factories have been operating continuously without any shutdowns. However, this summer, large-scale auto plant shutdowns are coming. Not only that, this year's shutdowns will be several weeks longer than in previous years. The reason is simple: in the first four months of this year, US auto sales have continued to decline, and there is no expectation that sales will rebound against the trend for the time being.

This may be one of the news that US President Trump least wants to hear. He has advised Ford, General Motors and Toyota not to build factories in Mexico, encouraged investment and construction in the United States to create more jobs, and encouraged long-term investment in the United States.

On May 1, 2017 (this Monday), Trump made a bold statement to foreign media: "Look at these big car companies. They all obey my instructions and invest in building factories in the United States." However, the reality is always not so good. Major car companies aim to reduce production in order to dilute the growing inventory as soon as possible.

"We are not as optimistic about the auto market as President Trump," said Michelle Krebs, senior analyst at Cox Automotive. "We are not seeing automakers building plants or increasing their vehicle production in the U.S. right now."

All automakers have not discussed their plans for the summer shutdown period, saying it is too early to discuss such issues and that they will make announcements when necessary. However, Erich Merkle, a U.S. auto sales analyst assigned to Ford Motor, said that Ford's current inventory is enough for 83 days of sales, and if the auto market sales trend remains unchanged, there is no need to extend the shutdown period.

Slowing sales

Mark Wakefield, managing director and head of the automotive practice at consulting firm AlixPartners, said that for the entire auto industry, even if sales remain unchanged (not falling further), weeks of factory closures are a foregone conclusion. He said major automakers are actively planning to temporarily close factories, slowing sales of sedans and small cars.

"Companies are anticipating that some plants could face three or four shutdowns in the summer because they are producing models that are not selling well and have a lot of inventory," Wakefield said. "At this point, automakers are not too worried about inventory, and they can just shut down a few more plants and extend the shutdown time."

The slowdown in sales in the first four months of this year has made the industry wonder whether this year's auto sales can get close to the previous sales peak. AlixPartners has lowered its sales forecast for 2019 by 1 million units from the expected sales in 2017 (17.25 million units). Last year, new car sales in the United States reached 17.6 million units. If the sales in April this year are converted into annual sales, it will be about 16.9 million units, lower than the expected 17 million units.

"People in the industry are starting to realize that the current sales level is not a so-called stable situation," said Wakefield. "Automakers are starting to reduce production and make corresponding production and sales plans."

Adjustments based on actual sales

GM Chief Financial Officer Chuck Stevens announced last week that the company intends to achieve its goal of reducing production by 60,000 vehicles by shutting down equipment. In a discussion with analysts on Monday, he said that nearly 30% of GM's factories will be shut down, and workers will enjoy "short-term" vacations, but will not receive unemployment benefits. GM plans to shut down for 10 weeks to refurbish and maintain factory equipment.

None of the six major automakers met analysts' previous sales expectations, and their sales in April fell, with Ford and Honda experiencing the largest declines.

In addition to the factory closures, sales are likely to continue to fall next month, prompting automakers to offer discounts and cut production to further reduce the growing inventory at dealerships.

Some people are negative about the industry view that "US auto sales will be less than 16 million in the next few years." Maryann Keller, an automotive industry consultant in Stamford, Connecticut, said: "The US economy is still strong and can maintain this sales level. Automakers are considering the actual sales situation and have made production-related adjustments, but falling below last year's peak of 1,760 vehicles has become a reality."

There are two reasons for the decline in sales: 1. Sales have been high in the past, and a large number of new models have been launched recently. 2. New models are more expensive, and car rental companies have tightened credit terms, causing many users to turn to the used car market.

“Some people can’t raise enough money, or the models are simply too expensive,” Keller said. “Only people with deep pockets or who have recently had more money are buying new cars, and that’s why sales have fallen recently.”

According to research data from JD Power, although automakers have offered discounts one after another, as of April 16, the preferential subsidies invested by automakers in April have reached as high as US$3,499 per vehicle, but it is still difficult to reverse the continued decline in sales.

According to Art Wheaton, a labor professor at Cornell University, the only consolation at the moment is that many passenger vehicles are produced in factories outside the United States, and although there may be a significant reduction in production, the impact on American workers will not be too great.

“I think the impact on the Mexican and Canadian plants is much greater than the U.S. plants because we don’t build that many vehicles here in the U.S.,” he said.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.