DETROIT — General Motors announced a big slowdown in factory production Thursday while Chrysler asked its suppliers to cut their prices by 5 percent on Jan. 1, further signs that Detroit is struggling with an abrupt weakening of auto sales and ballooning inventories of unsold cars.
GM said that it would produce 14.5 percent fewer vehicles in the next three months than it did in the first quarter of this year. Ford announced last Friday that its output would be down 10 percent in the next three months. And while Chrysler has not yet disclosed its first-quarter production plans, it is also expected to make many fewer cars in January, February and March by eliminating overtime and by not operating some factories at all for a week or two at a time.
GM had a 104-day supply of unsold vehicles at dealerships and in transit at the end of November, the company's largest supply since the last recession, when GM's inventory peaked at 106 days in January 1991, said Haig Stoddard, the manager of industry analysis at Ward's Automotive, an auto industry data service. Chrysler, a unit of DaimlerChrysler AG, had a 78-day inventory on Nov. 30 and Ford had a 80-day inventory, he said.
Automakers try to keep a 60-day supply in the field so that each dealership has an adequate selection of models in a variety of colors and with various options. Ward's, the industry's main source of inventory data, is still gathering data on how much inventory foreign automakers had on Nov. 30, Stoddard said.
Sharp declines in auto production are beginning to produce ripples across the Midwest and on Wall Street. GM and Ford are the world's two largest manufacturing companies by a wide margin, each accounting for slightly more than 1 percent of the nation's economic output, while Chrysler accounts for nearly another percentage point. The Chicago branch of the Federal Reserve estimated a few years ago that the auto industry directly or indirectly accounted for a quarter of the combined economic output of Michigan, Ohio and Indiana.
Delphi Automotive Systems, the world's largest maker of auto parts, announced last Friday that it was laying off 1,700 workers indefinitely because of reduced demand from assembly plants. The Visteon Corp., an auto parts giant spun off last summer by Ford, warned on Tuesday that it would earn only 35 cents a share in the fourth quarter. Excluding one-time gains, the company's prediction was 70 percent lower than analysts were expecting, according to First Call/Thomson Financial.
Rick Wagoner, the chief executive of GM, told Reuters at the end of a luncheon at Boston College Thursday that the entire auto industry needed to produce fewer vehicles.
"What we're all going to have to do is ratchet back production capacity, and that's painful," Wagoner said. "Once you swallow that, then you hopefully reach a steady state and lower level of production across the board."
GM said it would build 1,301,000 vehicles in the first quarter, down from 1,521,000 in the quarter a year earlier. GM also reduced its forecast Thursday for production in the current quarter by 5,000 vehicles, to 1,373,000.
This has been the best year ever for auto sales, and even November was a fairly strong month by historical standards. But automakers have achieved those sales with larger rebates and other incentives, and these discounts are now cutting so deeply into profits that manufacturers are deciding to reduce output instead.
Diane C. Swonk, the senior vice president and chief economist at the Bank One Corp. in Chicago, said that she still saw little cause for concern. "We're in an economy that's downshifting from 110 miles per hour to 60 miles per hour," she said. "As you downshift, manufacturing takes it on the chin."
Automakers seeking quick financial improvement have relied for decades on asking suppliers to cut their prices. Before being acquired two years ago by Daimler-Benz AG of Germany, the Chrysler Corp. had experimented with a partnership in which it tried to reduce costs in its assembly plants and at suppliers at the same time by sharing information, instead of demanding lower prices for auto parts. But that partnership appeared tattered Thursday as Chrysler informed suppliers that if they wanted to win future contracts, they should cut prices by 5 percent on Jan. 1 and seek an additional reduction of 10 percent over the next two years.
"We are in a difficult business situation, and we know the only way to initiate change effectively is by working together," said Dieter Zetsche, a longtime Mercedes executive who became Chrysler's president last month. "The true test of a strong relationship is measured during times such as these."