Tough Choices Ahead for Detroit's Big 3 Automakers

According to analysts at Wells Fargo, the "Big 3" Detroit automakers, including Stellantis (Jeep), Ford, and General Motors, are facing tough choices as they attempt to lower high inventory levels.

During the pandemic, these automakers raised prices due to supply chain issues, creating a backlog. As of the end of September, their inventory stood at 80 days, higher than the historical average of 72 days.

This elevated inventory pressure could push them to sell vehicles at deeper discounts ahead of the new 2025 model releases. The Big 3 aim to reduce inventory to a target range of 50-60 days, which is below pre-COVID levels of about 70 days. However, analysts caution that this is easier said than done.

Stellantis has been slow to reduce prices compared to competitors, which has contributed to high inventory levels. They plan to cut light-vehicle production to help reach their inventory goals, anticipating a production decrease before new model launches in late 2024.

Ford and GM, on the other hand, are projected by analysts to be insufficient in their current-quarter production. To meet inventory goals, they may need to cut 70,000 to 80,000 units in the fourth quarter.

The analysts believe a combination of production cuts and pricing strategy changes will likely happen, indicating a possible 14% to 15% reduction in output, which could lead to an earnings drop of $800 million to $1 billion before interest and taxes for the fourth quarter.