Automation

1. Why is AutoNation having a problem with its inventory? Why is this also a problem for auto manufacturers such as GM, Ford, and Chrysler? How is this problem impacting the business performance of AutoNation and of the auto manufacturers?

AutoNation is having a problem with inventory because of the culture of ordering a customized vehicle for a customer, but such an order usually adds six to eight weeks to the transaction. The customer who wants to buy on the spot must choose from cars on the lot that the manufacturer has already configured, priced, and shipped. Despite manufacturer incentives and rebates to entice customers to purchase, dealers often have a glut of new cars sitting in their lots for months at a time that no one wants to buy it. The swollen inventory and slow turnaround hurt dealers because they must borrow money to pay for the cars the manufacturers ship.

This has also become a problem for auto manufacturers such as GM, Ford and Chrysler due to their manufacturing processes which are not set up to quickly change production models and have been geared toward optimizing the efficiency of the production plant. Again because of the frequent change in consumer tastes which can shift almost overnight as gasoline prices rise or fall, or as one automotive fashion fad gives way to another.

This problem is impacting the business performance of AutoNation and of the auto manufacturers because it has become imperative for the manufacturers to keep their plants running regardless of demand to pay for the rising costs of employee healthcare and pensions. What’s more, auto workers must be paid most of their salaries regardless of whether they are working, so manufacturers want them working all the time. Another impact is losing market share to the Japanese and Koreans who are adept at producing small fuel-efficient cars. Auto manufacturers are also scrambling to revamp their product lineups but are not moving quickly enough. The enlarged inventory and slow...