Even though 2014's new vehicle sales prospects look good, automakers should watch their 'bloated' inventories, the head of the largest US retail dealer group has said.

AutoNation chairman and CEO Mike Jackson told television business news channel CNBC US automakers have a "pretty bizarre" way of calculating inventories to justify these levels.

In a Squawk Box segment interview, he said: "But if you cut through the bogus calculations and look at dealer inventory for the Detroit Three, it's over a 100-day supply. And it simply doesn't need to be there."

In response, Ford president of the America, Joe Hinrichs, said: "We have been cutting some production in the fourth quarter of last year and in the first quarter of this year on a couple of our product lines where we saw the inventory grow a little bit.

"The industry is a little different now. With our capacity running max out, we actually grow an inventory in the winter, come down in the spring and summer because we run our plants full all year round. In the old days when we had excess capacity, we'd take the plants down in the winter and work overtime in the spring/summer to supply to the demand."

He added: "We're watching it carefully, but I think we're going to be OK."

Jackson called 2013 "the perfect year," following the release of a better than expected profit report.

The dealer chain earned US$0.83 a share in the fourth quarter but revenues of $4.52bn for the quarter were lower than the projected $4.59bn, CNBC noted.

Nevertheless, Jackson said: "I'm optimistic about 2014. Industry sales will continue to grow 3% to 5%. We'll break through 16m units this year.

"The powerful drivers are the same in that there's genuine replacement need [because of the] age of the vehicles on the road; great financing is available; and we have the best product offering from the manufacturers ever," he added.

Jackson said he saw "very strong profitability from the suppliers, to the manufacturers, right through to retailers".

Hinrichs was also optimistic, saying the industry was showing progress when it came to quality.

But CNBC noted an analysis by Stifel Nicolaus found the North American auto industry recalled 18.8m vehicles—a surge of about 36%.

Hinrichs acknowledged Ford had to address a couple of issues with the My Ford Touch system when it launched.

With 16 new products [due out] this year, he said: "We're very confident that we have the processes in place to have successful launches."

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