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SUV inventories growing
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February 16, 2000: 2:48 p.m. ET
Automakers' most profitable vehicles seeing more competition, slower sales
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Dealer lots are starting to fill up with sport/utility vehicles, the driver of the auto industry's record profitability in 1999, leading analysts to believe incentives may be on the horizon.
But officials of the automakers and leading industry observers don't believe that rising fuel prices are causing the slowdown. Instead, they point to greater competitiveness due to new models and increased production for overtaking customer demand in some models.
"In the sport/utility segment, there's more choice for people compared to a few years ago," said Bill Seltenheim, vice president of Autodata Corp. "And with the ramp up of production, I think it's basically that production has caught up with demand for most of these vehicles."
Statistics from Autodata Corp. show inventories for the midsize SUV market rising to 76 days from 58 days in January of 1999, and 57 days as recently as December. The optimum inventory is about 60 to 65 days.
The problem of rising inventories is not as pronounced in the large and small SUV segments, although the midsize SUV is the core of the market, with 60 percent of sales and the three top-selling models.
The larger inventories are causing some increases in incentives. Ford Motor Co. (F: Research, Estimates) raised the incentive on the best-selling SUV, the Explorer, from $500 to $1,000 as of Jan. 17, for example. But Carolyn Brown, spokeswoman for Ford, insists that sales are on target for the vehicle and the move was inspired by competitor's pricing, not rising inventories.
"We don't have any parking lots developing," she said. "We're selling everything we build."
Still, some analysts believe that rising inventories are inevitable, especially later this summer just before the model year change over, even for many models that have not seen incentives before.
The importance of these vehicles to the automakers bottom lines could lead to some downgrades of earnings estimates for the year, said John Casesa, analyst with Merrill Lynch & Co.
"I think the competitiveness of the segment is creeping up and I do think the trend is towards more incentives," he said. "It'll still be more profitable than passenger cars. But this segment is as profitable now as it'll get. It gets worse from here."
Casesa and others industry observers say competition, not rising fuel prices, are responsible for the increased inventory.
"I don't think they (SUV buyers) are terribly concerned yet," said Csaba Csere, editor in chief of Car & Driver, in an interview on CNNfn. "I'm not sure buyers believe this price increase is permanent." (412KB WAV) (412KB AIFF)
Part of the reason is that even with the increase in fuel, SUV drivers will only pay $300 to $400 more in fuel a year than they would have paid a year ago, said Terry Sullivan, spokesman for General Motors Corp. (GM: Research, Estimates).
"We're saying it's a factor we're aware of, but it's not a factor at the price level we're talking about will make fundamental changes in buying decisions," he said.
Officials from DaimlerChrysler AG (DCX: Research, Estimates) did not return phone calls seeking comments Wednesday.
Sullivan said GM is looking at incentives for its older SUV products, such as the Chevrolet Blazer, but that the newer products are seeing strong sales. The larger GMC Yukon XL and Suburban models saw inventories fall to 42 days in January from 93 days a year ago, while the Chevrolet Suburban model saw its inventories fall to 42 days from 94 days.
Shares of GM rose 1/4 to 74-5/16 in trading Wednesday afternoon, while Ford shares fell 11/16 to 45-11/16. The American depositary shares of DaimlerChrysler fell 1-9/16 to 64-7/16 in trading in New York. 
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