A “YUGE” SIGN THE ECONOMY IS NOT DOING WELL

The number of unsold new cars on lots.

On May 10, 2017, there were 145,763 new 2016 vehicles unsold.

Today, 2016 new car inventory stands at 112,310.

At the current rate of sale, we will not sell through the new 2016 inventory till the last week of August.

Why this matters

Dealers always focus on selling their oldest vehicles first. This is because the majority of dealers floor plan their inventory.

As a vehicle gets older, the interest expense grows larger. Because of this, the oldest inventory always gets the prime real estate at a retail dealer location for maximum visibility. Newer arrivals are usually staged in lower customer traffic areas and not discounted as much in efforts to sell the oldest vehicles first. This method of inventory control works great as long as supply doesn’t overwhelm demand.

More Supply Than Demand Is Our Current Reality

Here’s a visual representation of this in action. On the way to a local park, I passed a dirt lot previously used as farm land now filled with cars. I looked at my wife and asked, “Did we just see that?” I quickly turned around to capture the image below.

cars

I could not believe new vehicles were being stored at a farm down the road from a new car dealer.

For two days I thought about it and could not get the image out of my head. I had to go back and see how many vehicles were being stored.

This overflow lot is now home to millions of dollars worth of inventory that customers do not see.

The topic of surplus dealer supply was also brought to light in a 2017 Bloomberg article by Gabriella Coppola where she cited a New Jersey Honda dealership renting additional space to store excess inventory for the first time in 37 years. The inventory problem today is a metaphoric train wreck as the engine (2016 unsold inventory) has been derailed, with the freight (2017/18 new inventory) still traveling behind at a high speed.

You might wonder, How far into 2018 will we have to go to sell the 2017’s?

As we noted previously, so far in 2017, Ford has proved to be right on the conversation of “plateauing” auto sales, but fails to mention what happens next.. That is an interesting question, if you believe in gravity of what goes up must come down. The Auto Inventory/Sales Ratio breached new high in March 2017 alluding to more building pressures in inventory.

This signals a weak demand pull from US consumers.

The Longer It Takes, The Greater The Pain

The only solution is to slow or halt production of new cars. The longer the manufacturers wait, the longer the production stop will be. Manufacturing is extremely important to our economy as well as the associated jobs.

It’s time to take the blinders off.

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4 Responses to A “YUGE” SIGN THE ECONOMY IS NOT DOING WELL

  1. BobF says:

    I wonder if one of the reasons is they’re lasting a lot longer. Back in the 70’s, you didn’t see many cars with over 100,000 miles but today that is considered low mileage. Although most cars still have bumper to bumper warranties of 3 years, 36,000 miles, most of them will have a powertrain warranty of 100,000. Nissan has a bumper to bumper 100,000 mile, 5 year warranty on their new Titan pickup trucks. Why trade off a vehicle that is still under warranty?

  2. antzinpantz says:

    Not really, Bob. These guys know how long the cars will last but they also know people want new cars. What they’ve forgotten to do is take into consideration we’re trying to throw off the burdens of an Obongo economy and many of those execs drank the Obongo Kool-Aid thinking everything was peachy.

  3. Eskyman says:

    These days I don’t even want a new car- I want a good OLD car. I like the idea of the steering wheel actually having a mechanical connection to the wheels; the brake pedal hydraulically connected to the brakes; and so on. In lots of modern cars, these connections are only electronic. The computer’s actually driving your car, it isn’t you.

    There’s a bigger problem: the way cars are being built (which also explains why they all look alike.) They’re built by Goobermental Regulation. Not because you or me wants a feature, or don’t want it, but because the Almighty Gooberment requires it to be that way. So to be affordable at all, corners have to be cut. Here’s a good article that explains the problem, I urge you to read it:

    “The truth is that probably every car made since about 2015 is a Latter Day Throw-Away. It will run beautifully for about ten years. Just a bit longer than those $500/month payments we were making.
    Then, some very expensive thing will fail, and you will be faced with a bill that’s not worth paying — or which you can’t pay.”
    https://spectator.org/a-great-time-to-buy-used-but-not-because-theyre-cheap/

  4. JC says:

    My 12 year old Camry works as good as the day it was made. Regular maintenance and good driving habits should keep it going for a long time.

    One thing not mentioned in the linked article is the fact that all new cars are GPS trackable. It’s bad enough that your cell phone can be used for that. You know that as soon as they have enough of those cars out there they will impose tax-per-mile fees in addition to the existing gas taxes. If they are going to add those kinds of fees, the only cars that should have them are the electric and hybrid ones that don’t pay much if any gas tax. Otherwise…exempt!

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