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Jan 14, 2009 -- Honda, Chrysler oversupply presents hazard and opportunity

CLARKONOMICS: One common measure of an automaker's overall health is the days' worth of supply they like to have on their dealers' lots.

U.S. automakers traditionally aim for 60 days' supply on a lot. That means that if they closed every factory, it would take 60 days to sell off the existing vehicles. Japanese automakers, however, like 40-45 days of supply on their lots. Anything less than that and customers likely will be disappointed when they go to a dealership looking for a certain color, certain features, etc.

But right now Honda has 100 days of oversupply on its dealer lots. So it would take 3.5 months to work off the inventory if they stopped all production today. That massive oversupply means right now you can steal a deal on any of their models -- even the very popular Accord and Civic.

Honda isn't the only automaker with tremendous oversupply. The king of oversupply at the moment is Chrysler. They are sitting on 142 days' worth of supply on dealer lots. That's almost 5 months of unsold inventory!

Back in April 2008, Clark wondered about Chrysler's future and got an earful from the automaker. Today, it's no secret that they're on shaky ground. Chrysler's situation is so dire that they're only still open because of the bailout.

So know this: You buy a Chrysler product at your own risk. Should the company fail, the warranties will vanish and the resale value of their vehicles will diminish.
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