The Fed warns the auto glut could get worse

In the minutes from its May policy meeting, the Federal Reserve’s Board of Governors warned the auto glut could get worse.

According to the Fed, “Automakers’ assembly schedules suggested that motor vehicle production would increase in the second quarter despite somewhat elevated levels of vehicle inventories.”

After posting record sales numbers last year, 2017 has seen a slowdown with every major carmaker falling short of sales expectations in April.

And after the big three automakers — Ford, GM, and Fiat Chrysler — posted weak sales for the fourth straight month, dealers are trying to entice potential buyers with discounts and incentives.

The combination of these factors — rising production rates combined with rising inventories due to slow sales — could force auto companies to reevaluate their strategies. Earlier this week, Ford’s CEO “retired” amid his company’s lacklustre performance, though reasons for his “retirement” likely go back further than the current slowdown.

But if automakers don’t adjust their production rates to match their inventory levels, the auto industry as a whole could be hurting for some time to come.

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