Before the worldwide auto industry meltdown, most analysts reckoned carmakers had burdened themselves with 40 percent production over-capacity. After the new car market shrunk by 40 percent, well, you do the math. Only there’s an anomaly: inventory levels. While we’ve got a pretty good idea of how many day’s supply of vehicles are lingering in dealer lots, what about all those ’08s and ’09s stored on vast parking lots, ships, airfields, etc.? [NB: above pic is from Mother Russia] The story got lots of play at the beginning of the cartaclysm, but slipped off the radar since then. Are we to believe that the lots were slowly emptied, as manufacturers shut down their plants? Or are there still hundreds of thousands of cars out there . . . somewhere? If so, we’re still in a price-inflated market, as those cars have to be sold sometime to someone. Anyone have any anecdotal or objective evidence one way or the other?
Econ 101:
To get rid of high inventories, you must LOWER PRICES.
How pick’em up trucks can still command in excess of $30,000 is beyond me.
Cars are too damn expensive.
So are homes, but that’s a discussion for another site.
-ted
My wild guess is that they’re quietly being euthanized, and that their records are getting ‘lost’ in the bankruptcy paperwork, and restructuring kerfuffle.
Just a conspiracy theory though.
Downsview Park in toronto used to be filled with Chryslers. I don’t see them there anymore so either they’ve been moved or sold.
Don’t buy an 08 that has been sitting for over a year on a lot. Engines come out of the factory, meant to be run on a regular basis, not to sit idle for over a year.
How about here? Mrs. Panhard and I Miata’d to Hoboken for lunch on Saturday. We crossed the Newark Bay Bridge and there is no shortage of cars, trucks and SUVs sitting around, waiting to be adopted. lookie here!
Since we were in a Miata, it’s kind of hard to see what’s over the guard rails. Look for the “ants” in this photo. In real life, there’s more ants.
I spoke with an honest and elder salesman at a Chrysler dealer that was terminated in Henderson, Nevada.
During their big ‘Fire Sale,’ he told me the bank was running the dealer, they were being paid by the hour, and most of the cars and SUVs were being hauled off to an undisclosed location that no one was told anything about.
He went on to tell me that he took the liberty to chat with one of the haulers that was loading cars (while he was on his lunch break), and the trucker told him the cars were being taken to desert storage, and they had him and his fellow truckers working overtime hauling cars to open storage facilities to dump cars.
Me thinks the creditors have something to do with A HELL OF A LOT OF CARS AND TRUCKS hiding out in storage all over the world.
What sound does a car with no buyer at almost any price make?
My local VW dealer has a rather large inventory on their lot considering they are in a area where mostly domestics sell, (metro detroit) and that another VW dealer is located within a few miles. I test drove a CC not long ago and was inquiring about the vehicles they had in stock and was takent to out of the way location that must have nearly equalled the large inventory on the dealer site.
Obviously, I do not know how brisk sales are at this particular VW dealership, but I suspect that it has significantly more inventory that it can move without the use of fire sale tactics. Not really in the market for a new car, but VW was offering some very attractive deals on the vehicle I looked at.
Just got 30.5% off MSRP on a brand new 2009 Hyundai Sonata about 6 weeks ago. The car hadn’t sat around for ever, either. Being a prior customer got us some extra discount. Interest rate was low, too.
Now’s the time to buy new if you can. Certainly don’t buy a car that’s been sitting for a year unless you get 50% off MSRP. At this point, you have the advantage and if you can wait until the price comes down – wait. Then spend a few hundred dollars, change the oil after 500 miles, put new rotors on it right away, etc. Just spend the frankly minute amount of money to be safe.
I don’t know about you, but I refuse to buy from companies which soak from me via the theives in Washington, so that rules out any future GM or Chrysler purchases for me.
Besides, this time, I wanted to buy a car actually manufactured in the United States, if I could. I figured our country could use my money. If Toyota start building Prius’s in the USA, I may consider one in future – otherwise, I’ll probably replace my Prius with a Sonata hybrid after it is introduced in 15-18 months. (I probably will wait a few years to buy in fact).
(The Sonatas are manufactured in Montgomery Alabama, down to and including the engines).
I have seen several new ’08 Caymans and Boxsters sitting on DC area Porsche dealer lots as recently as this weekend. That can’t bode well for their inventory levels in more remote locations.
One trick I’ve learned for finding out how long a car has been on a dealer’s lot is to look at the state safety inspection sticker on the windshield. About a week ago I saw a “new” Tacoma on a Toyota dealer lot that had an inspection sticker from September 08. North Carolina is phasing out those stickers which is unfortunate, it removes a bargaining tool I’ve used in the past with good effect. However the inspection report is usually in the glove box, so you can still find the date it came in.
Luckily for me the dealers never seemed to catch on this and always put the stickers on as soon as they took delivery of the cars and never updated them.
“Now’s the time to buy…”
Infamous last words, right up there with “We’ll never have prices this low again,” and “everything must go!” and “no reasonable offer refused!”.
Prices have nowhere to go but down, no matter how much inventory they take off the market.
With unemployment skyrocketing and wages falling, I’ve never seen such light rush hour traffic, nor as many 10 to 15 year old hoopties, seemingly held together with duct tape and super glue, on the roads. When those cars fall apart, they’ll buy another sub-$2,500 hoopty from a payday-advance styled used car shack.
I can tell you for sure that there is virtually zero ’08 Cadillac, Buick, Chevy or GMC inventory. In fact, ’09 GMC Acadia and ’09 Buick Enclave in drastically short supply.
Well, ohstapback, I did clearly say “IF YOU CAN AFFORD TO” as part of “now is the time to buy”.
The law of unintended consequences has a habit of biting one on the @ss.
Here’s my point.
It’s clear that hoopties, clunkers, bangers – junkheaps that shouldn’t be on the road – are being kept on the road longer, just as you say.
You nonchalantly then say “When those cars fall apart, they’ll buy another sub-$2,500 hoopty from a payday-advance styled used car shack.” And that is true.
Economics 101: there is a limited supply of $2500 cars. When demand goes up for a needed item and the supply cannot be increased, what happens to prices?
Economics 102: When prices of $2500 cars go to $3000 or $3500, what happens to the price of $3500 cars? They go to $4000 or $5000…. etcetera, etcetera, ad infinitum, ad nauseum.
Economics 103: Car prices of USED cars going up might do what to new car sales? Obviously, some folks will take the decision to buy new (“the car is just as affordable because I can get a 5 year loan on a new car”) instead of used, slightly moving the peg on new car sales. This will clearly mean price-reductions MAY SLOW DOWN or even reverse, for new cars, eventually.
I’ll put it another way: A certain number of cars per year MUST be replaced due to old vehicles leaving the “fleet” of vehicles on the roadways. That number is approximately 12 million per year.
We’re going “backwards” right now and replacing fewer than that with new cars, under 10 million per year; clearly this cannot stay pat UNLESS the economy tanks so badly that nobody can afford to drive.
Then, all bets are off.
Besides which, my wife’s first (and probably only ever) leased 2007 Sonata had to be turned in, and we can’t “quite” manage as a 1-prime car family. (I have collector car insurance on my old BMW and don’t use it as back-up).
Inventory is in short supply because they shut the plants down for longer than ever, plus they are storing massive amounts of new cars all over the world – the Port at Long Beach is no longer able to store cars; it’s the busiest storage port for Asian and German cars in the U.S., and Toyota actually has resorted to storing cars on container cargo ships (rented by the day) docked off shore.
If the domestics want to have a viable business (however slim the chances), and have revenue again, they’ll have to fire up the lines again.
Plus, they took so much taxpayer money, they’ll have to be a quasi-jobs bank, at least for the near term.
I am predicting the Japanese and Koreans are going to ramp up production soon, also, as they really have no other choice, either.
With the efficiencies of their plants and interchangeable assembly lines able to build multiple vehicles on the same lines, with 1/2 or 1/3 the workers of old, everything points to auto-deflation big time.
menno: “Just got 30.5% off MSRP on a brand new 2009 Hyundai Sonata about 6 weeks ago.”
That’s terrific. In my part of the country, dealers (or manufacturers) don’t seem to be that hungry for business. The local Hyundai dealer slaps $500 or so “market adjustment” stickers on Sonatas. Yesterday I saw a $4,995 “market adjustment” added to MSRP on a 3.8 Genesis.
And when I go to True Delta or other pricing info sources, I see the factory incentives are down quite a bit. Not so long ago, Fusions and Milans carried $3,500 rebates. Now: $1,000 or so.
Stronger brands like Honda and Toyota just promote lower interest rates on loans. They offer no incentives for a buyer who doesn’t need manufacturer financing and/or realizes that lower interest rates are a way to push hard-to-quantify savings years into the future. Honda and Toyota are simply unwilling to cut prices to boost sales, and their dealers have the same mentality. Locally, Camrys carry $500 to $1,000 in mandatory distributor ripoff window stickers. I assume a chunk of that baksheesh goes to the dealer.
My conclusion is that car makers have decided to let Cash For Clunkers do the job of selling cars.
@ Rod Panhard.
That port storage is typically incoming from China/Japan/Korea which means those are Kias/Hyundais/Mazdas/ and the like…..
I doubt those are sitting there very long as they’ve (newer, foreigner, auto-ier companies) are more flexible and shouldn’t have to be maintaining a higher supply….
http://www.freep.com/article/20090712/BUSINESS01/907120426/
Chrysler’s inventory is down to 71 days’ supply at the end of June, down from 114 days on April 30, the date of its bankruptcy filing, according to Ward’s Automotive Reports. Generally, a 60-day supply of inventory is considered ideal.
Detroit-area parking lots where Chrysler has stored bloated inventories are empty for the first time in years.
Not only were the 44,000 vehicles held by the terminated dealers sold off, but Chrysler is not pushing dealers to take more vehicles than they can sell.
“Right now, I put in orders for 400 more vehicles, but I may not get that many,” said Bill Golling, a Bloomfield Hills Chrysler, Jeep and Dodge dealer. “That is different.”
I live in a one horse town. And every dealer is owned by one man. I drive by all his stores and the lots are pretty thin on inventory. Plus, the inventory on hand are vehicles with a pretty hefty window sticker.
Smart man. He ain’t hurting….
The last thing the Feds want to see is a collapse in prices for cars or houses. A collapse in the #1 and #2 value assets that most Americans own, or hope to own, would lead to a general price deflation. A deflation would be an unmitigated disaster for a debtor nation like the US. Both fiscal and monetary policy is now be used to avoid any deflation, avoid it at all costs. The results will be stagflation that will last for a long time, maybe years.
Today I saw a story in the local paper with a Ford dealer complaining that he can’t get enough cars and trucks (Paul Harvey Ford – Indianapolis).
I’m sure a lot of the problems are like many other industries – too much of the wrong stuff, not enough of the right stuff. Pretty much impossible to find a Challenger in my area, and of course Camaros are rare too. My local dealers are pretty stingy on the Miatas too, can’t figure that one out.
“Certainly don’t buy a car that’s been sitting for a year unless you get 50% off MSRP.”
Methinks you ought to re-think this statement. 50%?
Double post
The dealers are all whining about not being able to get enough inventory now, and in 6 months, they’ll be crying that the manufacturers are forcing it down their throats again.
Wait and see. By the way, Treasury and the Federal Reserve have been fighting deflation with 2 trillion in direct liquidity (and 6x that in backstopping of bonds and other loans and debt instruments), and they’re losing the battle so far.
House prices are still plunging at a fierce rate, too.
Once consumers get this scared, they stop spending on anything they absolutely don’t need, and the government will not get them to spend. This is what leads to depressions.
Seasonality in car sales? Do car dealers in the North East with their salty roads sell cars in the winter?
Once consumers get this scared, they stop spending on anything the absolutely don’t need, and the government will not get them to spend. This is what leads to depressions.
If people are sick of bailouts, wait till they see the amount of fed spending necessary if housing (and subsequently, banks) collapses.
Propping up the house of cards that wall street built is going make auto subsidies seem incredibly cheap.
Wherever they’re storing all those unsold cars, it isn’t in Denver. The big rail freight yard where they unload new cars to this region is looking emptier all the time, with, I’d estimate, 80% empty asphalt last time I drove by. The local Ford store looked similar. In years past, I could gauge the effect of gas prices bv whether the perimeter was lined with trucks or Focuses. Now it’s Mustangs, parked end to end to take up the maximum space, but still a car length apart.
Personally, I’ve never felt farther from wanting to buy a new car. Not just for economic reasons. The new cars just suck, IMHO. I can’t replace my current fleet with new cars, because VW doesn’t put TDI in the New Beetle anymore. Meanwhile, the new Subaru Forester has a seat and headrest combination that may save the necks of crash test dummies, but won’t accommodate a normal human form. More interesting pending choices, like Fiats and clean diesels from a wider range of manufacturers, remain in the future.
I was by the Port of Tacoma not long ago, and there must have been 30 acres of Nissans and Kias.
Anecdotal and circumstantial? Those are kinds of “evidence”. Lionel Hutz.
First, I’ve noticed that many rebates and dealer cash have shrunk in the prelude to the CARS (aka cash for clunkers) program.
Second, I’m no conspiracy theorist, but there is no way all that inventory that had been documented worldwide just months ago has been sold. Not a chance.
In fact, it was reported, factually, that of the 44,000 cars and trucks TERMINATED Chrysler dealers had, they were only able to sell just north of 16,000 units prior to their drop dead date in June (was it June 9th?).
I firmly believe car makers and dealers are colluding, along with lenders, to create the impression that car inventories are lower than the truth would reveal, because this is the only way they can stop the deflationary expectations that leads the public at large to delay car purchases, as even moderately rational consumers will hold out as long as possible if they believe prices will be lower later than they are currently.
Watch all that “missing” inventory to slowly work its way back into the supply chain, along with freshly built product.
The car makers and dealers are playing the same dangerous game the banks are with foreclosed homes – instead of taking the pain and loss now, and marking the price to market, that would encourage consumers to not be able to pass up the amazing deals true supply should mandate, they are keeping supply off market in the hope they can achieve sustainable reflation of prices.
But just as in the housing market, it ain’t gonna’ happen.
Here’s Hyundai and Mercedes in Alabama, ramping up production of fresh product again, by the way, so look for discounts to increase soon with supply increasing (sales sure are not going to rebound anytime soon).
http://www.tuscaloosanews.com/article/20090708/NEWS/907079937/1001?Title=Mercedes-plant-back-to-five-day-workweek
You see, factories can only shut down for so long, no matter how bad things are, unless the factory is being closed. They can only run at partial capacity for so long, too. It’s really a game of chicken between manufacturer and consumer.
The U.S. consumer hasn’t blinked. At all.
i think a 50% off MSRP is wishful thinking. but you have to admit, as economically wrong as it sounds, it is tempting to think that because there are more cars than they actually sell as present prices, dealers and manufacturers should go on a Fire sale to rid themselves of overstock.
but what people are tending to forget is that manufacturing came a screeching halt, and manufacturers will not drop prices just because. because if they do, they will run out of stock, and then they will have to re fire up the mill, and then people who needed to buy cars have already bought cheap, and others that didnt will not pay double or 25% more than they could of for a long time. puting the manufacturers back in the same wormhole… catch 22 really…
A Volvo dealer near my office has brand-new 2007 and 2008 Volvo S80 sedans in stock. I guess that makes a 1000+ day inventory.
Well perhaps 50% off is a little extreme, but why pay more than 70% of MSRP for a one or two year old car, when I just bought a brand spanking new car for over 70% off?
The local Kia dealer had over-ordered Rondo miniwagon/vans and just broomed the last of the 2008’s at the end of June (just out of interest, I’d been watching his website). They started out in January with something like 127 cars, by May, they were offering 30% off to broom the last of them.
Does anybody know what sales rate is used to calculate the “days of inventory remaining” figure? If that rate is not adjusted regularly enough, the resulting days-of-inventory figure would be very misleading in today’s environment, with its massive year-on-year sales declines.
In any event, I find it unlikely that carmakers can “hide” unsold inventory from their auditors and the public for too long. Too many people would end up in jail over such a fraud for it to be worthwhile. Instead, I think if you basically halt production across the entire industry for a quarter, you’ll draw down inventory by 2.5m units (even at today’s sales rate) which would clear out a lot of storage yards.
Regarding the broader picture, the fact is that the U.S. has had more cars than drivers for years now. My rough guess is something like 250m cars to 200m drivers, but you can track down more refined figures if you are inclined.
The point being, if our sales rate stays at 2m below our scrappage rate for years to come, and our population of drivers increases by a net 2m per year over the same time, it’ll be 2021 before we’re back at one car per driver — not a hardship ratio by any standard (similar ratios prevailed in the 1960s and early 1970s). Environmentalism and carbon taxes could easily sustain such a trend even when the economy finally revives a bit.
Regarding price levels — you have to think back to Business 101: For any production industry, there are fixed costs and there are marginal costs. Over the course of a year or a product cycle or something you have to recover your fixed costs as well as your marginal costs, or go broke. But over any given sale, you just have to recover your marginal costs, transaction costs, plus a small profit, in order to make the sale worthwhile. That small profit does not need to come near a pro-rata share of fixed costs. That’s why “deals” are sometimes available to buyers who drive a hard bargain and are willing to be a bit flexible.
In an industry with overcapacity (too much money sunk into fixed costs, such as capital plant and equipment), it is entirely likely that some of that excess production capacity will come into the hands of a new producer (think Fiat or New GM) at far below replacement cost when an existing player goes under. This also happened to the telecom industry about a decade ago, for comparison’s sake.
The new entrant, not having to recoup the full measure of fixed costs over the product cycle, can basically make each sale at marginal-cost-plus, and undercut the competition. Which is not the end of the world — the competition lives off savings until the end of the product cycle (when everyone must re-invest in fixed costs) or files for bankruptcy and emerges with a better cost structure, and the cycle repeats anew. Capacity is shed here and there through accident, happenstance, and the usual wear-and-tear or becoming obsolete at the end of the product cycle, and is not replaced as it is lost, rationalizing the industry.
In the alternative, Honda, Toyota, and all the rest differentiate themselves through branding, quality, features and other customer-service measures, and use these things to command a premium, which becomes steeper as the competition becomes lower and lower priced. Given customer loyalty among the import brands, the New GM will simply live to die another day, and capacity will slowly be rationalized that way.
Note that when there is no possibility for differentiation, branding, artificially short product cycles (model years anyone?) forcing all the players to ante up new fixed costs more frequently, irrational customer loyalty, and the like, you end up with the classic case of “ruinious competition,” and the attending justifications for a suspension of traditional antitrust rules in favor of a regulated “natural” monopoly or regulated cartel market. The early proponents of “ruinious competition” theory did not adequately understand the power of branding, artifically short product cycles, and differentiation to keep most markets “healthy,” but there are narrow areas in which they actually got it right — utility grids and railway networks are two examples.
Hyundai/Kia like to use Scioto Downs just south of Columbus as a storage lot during the “off season” when the harness racing isn’t taking place.
I know this year alone there was probably close to 1000 Kia’s of all models sitting there. Of course come May 1st they had to be relocated as they prepared to open up for the season, but Hyundai and Kia are sitting on a lot of cars in the Central Ohio area right now.
The average age of a car in Cuba is 40+ years old. Americans can drive hoopties/clunkers for decades and never touch another new vehicle if they so desired and economics dictated so. 12 million vehicles per year do not need to be replaced, no more than 17 million did (i.e. previous annual sales figures). Sorry menno, you’re way off on this call.
As for prices, cash on the hood and similar incentives, and “what one should pay for a year old vehicle”, I direct your attention to a comprehensive report by Forbes, Consumer Reports, JD Power and others that points out that many, many new vehicles, especially from the Detroit 2.8 are badly overpriced (example: Dodge Ram 1500 pickup is actually worth about $7500) despite the incentives.
As for old new stock, vehicles do not store or age well without careful preparation, ask any auto museum curator for details. Cars sitting around for 18+ months waiting on someone to buy them have almost become lemons, fluids have settled, rubber/plastic components have started to degrade, UV damage to paint and synthetic parts is well underway, problems will range from simple things like rotten windshield wiper rubber to oil sludge formation and dry rotted tires. Look for birds nests, spider webs, and dead bugs inside the trunk, rusty spots, stains, condensation buildup, squeaks and squeals, split seat stitching or cracked dashes (in hot sunny climates), unlubricated journals, etc. They were designed and built to be operated regularly, not meant to sit around. 50% MSRP is probably generous.
Final note- Local Chryco dealership with two giant inflatable gorillas on the roof, not set to close, has sold or otherwise “moved” 75% of what was on their lot, and they were overstuffed to the gills a few months ago with factory cramdown stock. Meanwhile, the two GM dealerships in town consolidated into one, the closed one is boarded up, the remaining one is still stuffed to the gills with unsold stock equipped with 4 foot high magnetic price stickers.
My old pickup will keep right on running, thank you very much.
My car is 3 years old and 32,000 miles. For the first time, after owning maybe 10 cars in the last 25 years, and after buying or leasing a new car every 2-3 years, I have NO INTEREST in buying or leasing a car, and selling the one that I own, problem free, for a long, long time.
I even have my own, private mechanic, plucked from the hundreds and hundreds of people advertising their skills for sale in Craigslist – he knows his stuff, and saves me 70% off the stealership prices for maintenance, and he’s better off (makes more $$$) and I’m better off for it.
Many if not all my friends feel and are acting consistently as I am.
I can honestly see hanging on to my current car for another 5-8 years, easy.
This is the first time I’ve engaged in this behavior, and the first time I’ve seen my circle of friends and family mostly following along.
A sea change has taken place.
The best selling cars in the U.S. right now are used cars priced $4,600 or less.
fallout11
ohsnapback
I’m with you. Recently moved very close to work, keep the cars in a two car garage. That and a proactive maintenance regimen will allow us to say ‘fuck you’ to Big Auto for ten years.