Millions of new cars remain unsold. Join the dots…

8 Feb

DSC00283roadwax

As more than 10 MILLION brand new cars join the ever increasing backlog of unsold stock across the World – four million cars in Europe alone – factory closures are now to become a reality.

Well-hidden and secure compounds across Europe, Asia and America are the usual first home for newly-born cars awaiting shipping to dealers. But these are now so full that dealers themselves are having to store cars in their already-packed yards.

The backlog of stored new cars in Europe now runs to four million. US sources point to a similar figure for America and things are so bad in China that Mercedes Benz are offering as much as 30% discount on some new models (S-Class, anyone?) as an attempt to shift stock.

No matter how politicians of all persuasions in all car-making countries try to dress it up, the fact is that production lines and whole factories now stand to be closed as a means of reducing output to match the drop in demand.

As Jorn Madslien’s BBC article here points out, the 7 – 10% annual drop in European demand since the Banking crisis of 2008 is set to continue through 2013 according to industry analysts.

There is no evidence to suggest that this trending reduction in demand will halt. Unemployment, static wages and financial insecurity continue to keep potential customers away from showrooms.021roadwax

What many ordinary people have overlooked in the last three years is the part that national politicians have played in this unfolding catastrophe.

Anxious to deflect criticism of themselves from voters already outraged at the corruption within the financial industry that has wrecked economic prospects, many political leaders have persuaded car giants to keep production at a steady level to avoid redundancies.

In the last three years, American car-making states have seen the quite shocking sight of trains loaded with brand new cars leaving the factories bound for the deserts – where the cars are simply off-loaded and parked up – as an alternative to laying off workers or reducing pay-packets.

Now, this temporary vote-buying strategy has resulted in such high levels of surplus vehicles that the need to close whole factories has replaced the idea of cutting the odd work shift. There is now no other option left.

Discounting of new car prices at dealership level is now rising into thousands of dollars. Some makes and models are almost dead in the water, effectively having so few interested potential buyers that they may as well not be offered.

Chrysler, for example, has more than six months worth of 2013 Dodge Darts parked up right now, as the Wall Street Journal’s article here reveals.

Six months worth of Dodge Darts. At what point does a ‘new’ car technically become an ‘old’ new car? Can a car that has sat out in the open for most of a year still be described as ‘new’? One can easily imagine the challenges that car manufacturers now face.

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But showroom price discounting – especially up to amounts like 30% – can wreak havoc with the residual value of that car’s marque. The prices of ‘nearly-new’ second-hand versions plummet at auction and fleet clients and Hire Purchase customers can become saddled with a kind of negative equity on their own vehicles. Fleet News made this point six months ago in their article here.

Some commercial vehicle manufacturers have been hit really hard as savvy fleet operators have held onto their trucks for an extra year or two to avoid this depreciation risk. One major truck maker sold zero units of its product in the UK in 2011 as regular clients simply sat tight.

General Motors has only now struggled back into profit in the US after years in the red with an unloved product range. Desperate for small cars it didn’t have, it hastily re-badged Asian Daewoo products, slapping a ‘Chevrolet’ badge on them and shipping them into America.

Now, it is watching as its twin European badges – Vauxhall and Opel – fight a desperate war to survive. It is abundantly clear that 7-10% over-capacity plus some ageing and inefficiently designed production facilities cannot be propped up at all cost.

roadwaxJeep 101

In this situation, the cost will be production line workers. There are no deserts in Europe to hide millions of unwanted cars.

The emerging giant economy of China fueled the revival of hopes in 2009 for top marques like BMW, Cadillac and Rolls Royce. Dying on their feet as Europe and America struggled with a banking collapse, these big names spearheaded a rush to satisfy Chinese auto sales volume growth of 46% in that year.

But by 2010 that figure had dropped to 32% and in early 2011 it slumped to 2.5%.

We are not supposed to use the word ‘problem’. The fashionable and politically correct word today is ‘challenge’.

The ‘problem’ is over-production of depreciating consumer goods.

The ‘challenge’ for today’s politicians is to find unemployed workers jobs that can generate their family a surplus income. Enough to buy yet more depreciating consumer goods and certainly more than enough to live on.

If today’s politicians actually have a solution to this challenge, then they are keeping very quiet about it.

 

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