Moving inventory off the lot and into the driveways of new owners has been something that the Big 3 have recently struggled with, and GM's Employee Discounts for Everyone has proven to be an effective short-term fix to the problem. A 60-day supply is considered optimum by many OEMs, as that provides a buffer between changing customer preferences and not-so-flexible factory build schedules. GM ran a 73-day supply in May 2005. That extra 13 days of supply represents approximately $5B of additional inventory. Consider the daily interest payments on that amount, and it's easy to see why excess inventory is bad. The firesale knocked inventory down to 48 days at the end of June, which means that GM gets to keep their plants running near full speed instead of bearing huge temporary-shutdown expenses. Ford and Chrysler both increased their inventory in the month of June, providing key insight into why they're jumping on the employee-discount bandwagon. The longer-term effectiveness of this approach remains to be seen, but for now, Detroit needs to buy time while they figure out how to move vehicles based on something other than price, or decrease capacity in a way that's not financially devastating.


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