Group 1 says Chrysler must cut inventory

DETROIT (Reuters) - Chrysler Group needs to take steps to reduce its inventory of unsold vehicles to keep dealerships from throttling back on orders for the new 2007 models, the head of a major dealer group said on Monday.

"I wouldn't pick the tactic for them but the need exists," Earl Hesterberg, president and chief executive of Houston-based Group 1 Automotive Inc. (GPI.N: Quote, Profile, Research, Stock Buzz), said at the Reuters Autos Summit in Detroit.

Chrysler, the Detroit-based unit of DaimlerChrysler AG DCXGn.DE, offered its dealers some subsidies over the summer to offset the cost of carrying the oldest vehicles in their inventory but needs to go further, he said.

"There's a Chrysler inventory issue. There has been this summer and I don't believe it's been resolved yet," he said.

Hesterberg said Group 1, which owns 98 dealerships, ended its second quarter with too many unsold vehicles from the traditional Big Three U.S. automakers. This was in part because it had expected the automakers to offer more aggressive discounts of the kind that drove 2005 sales in the summer months to record levels.

Group 1 ended June with inventory equal to 74 days of sales for vehicles made by General Motors Corp. (GM.N: Quote, Profile, Research, Stock Buzz), 90 days for Ford Motor Co. (F.N: Quote, Profile, Research, Stock Buzz) and 103 for DaimlerChrysler AG's DCXGn.DE Chrysler Group, he said.

"It's one of our bigger issues," he said, adding that the company had targeted a reduction in its inventory of cars from the Detroit-based automakers to 75 days of sales on a combined basis and would ideally cut that to 60 days.

By contrast, Group 1's inventories for Toyota Motor Corp.'s Lexus luxury brand are equivalent to just eight days, he said.

Higher U.S. interest rates have made it more costly for dealers to cover the cost of carrying inventories, typically one of the largest costs for auto retailers.  Continued...