By on May 18, 2014
nissansunderland

Photograph: Nigel Roddis/Reuters

There’s a post at the Zero Hedge finance site that’s getting some attention. It’s really a repost from this site, and it includes a number of aerial and satellite photos of thousands of new automobiles that the author says are sitting on storage lots, unsold. The author claims that automobile manufacturers are continuing to churn out thousands, perhaps hundreds of thousands of cars that will likely never ever sell. He warns that those cars that do sell will suffer mechanical issues from having sat for so long. He claims that those cars that don’t sell are recycled and that it’s all a sham to keep assembly lines churning. The author also doesn’t know what he’s talking about.

In reposting the article, Zero Hedge amplifies the original author’s claim by accusing General Motors of “channel stuffing” since the automaker’s inventory of unsold vehicles in April was up to 85 days’ supply, a post bankruptcy high. I’m not going to even try to defend GM, but I will point out that while that’s indeed higher than the 60 days’ supply that’s considered healthy in the industry (too low an inventory means that some people who want to buy a model can’t get it in a timely fashion and they end up shopping elsewhere) it’s nowhere near what have historically been considered crisis levels. It should also be pointed out that even when inventories are at that ideal 60 days’ supply, you’d easily be able to take photographs of thousands of cars sitting on storage lots awaiting delivery to dealers. I haven’t checked the SAAR level for U.S. car and light trucks sales in April but it’s been running at or above 16 million units a year in recent months. That means that a 60 day supply is about 2.66 million unsold cars.

Most of the photos are of European locations. The European market has been soft for years and only recently has shown signs of bottoming out or even a slight improvement so it shouldn’t be surprising that some manufacturers have lots (in both senses of the word) of unsold cars. The image above shot by Nigel Roddis of Reuter, though, was taken of Nissan’s UK test track at Sunderland back in 2009, one of the worst years in automotive history, the year that General Motors and Chrysler had to file for bankruptcy. In 2009 the Sunderland test track couldn’t be used to test cars because it was filled with unsold cars.

Roddis’ photo was one of the images reproduced in the article reposted at Zero Hedge. The original author, Vincent Lewis, is the author of a book about conspiracy theories and I get the impression that he’s a believer in such things. How much he knows about the auto industry is open to question. His post never mentions what normal inventory levels are, nor does he reveal the dates of the photographs of thousands of unsold cars that he uses. Lewis does say that when he recently checked the Sunderland track on Google’s satellite view, all those cars had disappeared. Now those of us who know something about how the car industry works might foolishly assume that in the 5 years since the photograph was taken, most of those cars were delivered to dealers. Instead of telling us how old the photo is, he expresses skepticism that they were all “suddenly” sold and then guesses (his own word) that all of those cars were sent to the crusher, so as to continue the charade that they are making and selling cars:

UPDATE: Currently May 16th, 2014, all of these cars at the Nissan Sunderland test track have disappeared? Now I don’t believe they have all suddenly been sold. I would guess they may have been taken away and recycled to make room for the next vast production run.

dodgesuvsbaltimore

Another photograph that Lewis uses is of 57,000 unsold vehicles sitting at the Port of Baltimore. A quick search for [57,000 and Port of Baltimore] shows that the original story about that number of unsold cars stored at the port was published also in 2009, though Lewis gives the implication that those cars are still sitting there. How little Lewis knows about the auto industry can be seen from the fact that the vehicles in the photo are Chrysler Aspens. The Aspen was an upscale fullsize SUV that was discontinued by the 2010 model year. The Aspen didn’t sell well, but if Lewis can guess that Nissan crushed thousands of new cars just to keep their factories running, I can guess that in 2014, there aren’t 57,000 unsold new-old-stock Chrysler Aspens.

Not all of the photos are old. Lewis takes the effort to provide the timestamp on a photo of a storage lot near the port of Sheerness, UK that shows Google’s most recent view of the port from outer space. While there are indeed thousands of cars sitting at the port, what Lewis doesn’t tell you is that Sheerness is one of the leading ports for the importation of cars to the United Kingdom. While manufacturers do inventory thousands of cars somewhere near the assembly plants where they are built, they’re not likely to take the expense of putting them on a boat and shipping them overseas for storage there.

Now normally I would ignore the dreck that flows from the mouths of conspiracy lunatics, but I’ve noticed that a number of politically oriented sites have linked to the Zero Hedge post without realizing that it’s based on very little factual information. What little factual information there is in fact “based” on old photographs. While the photos may be dramatic they and Lewis’ post are not necessarily indicative of anything that’s going on today.

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88 Comments on “Consider the Source. Lots of Unsold Cars Are Normal....”


  • avatar
    PrincipalDan

    Somebody should show the Zero Hedge folks some of the pictures of thousands upon thousands of unsold cars during the ugly years of the 1970s. Pictures like these are cyclical like the business cycle.

    • 0 avatar
      VoGo

      They keep the black helicopters in underground parking lots.

    • 0 avatar
      jhefner

      I remember when fuel prices spiked at over $4.00 a gallon a few years ago. A field in Midlotian, TX next to the rail yard began to be filled with SUVs produced at the GM Arlington plant. At it’s peak, there must have been hundreds, if not thousands of SUVs parked in the fields next to the yard. At the same time, Prius and compact cars replaced some of the pickups and SUVs I would see on the highway.

      Guess what — they then announced on the local news that a shift at the Arlington plant was being furloughed due to poor sales. The field of SUVs gradually evaporated.

      Tresmonos or someone in the industry can correct me; but I believe there are small limits to how muchyou can speed up or slow down an assembly line. So, you continue to produce until inventory levels become too high or too low; then you either let go or bring on an entire shift or production line, and continue until another adjustment is needed.

      Others pointed out that sometimes a company will produce excess inventory of an outgoing model (GM’s previous truck line) to keep the pipeline full while they retool the plant(s) for the next model year.

      Other companies produce excess product for the same reasons or business cycles. But, their excess production is usually locked away in a warehouse out of the public eye; and even if you did see it; it would look far less impressive than a field full of parked cars.

      • 0 avatar
        mikey

        @jhefner…..Slowing or speeding “jobs per hour” is never easy. Pulling a shift is a long term solution. Its easy to pull a shift. Adding one in? Not so easy.

        The most painless option is pulling a few weeks out the schedule. If it looks like it may be long term? Slowing the JPH might be the only answer.

    • 0 avatar
      Sigivald

      Well, that and Zero Hedge tends towards … excitability.

      And being wrong.

  • avatar

    Human waste at its best.

  • avatar
    indi500fan

    The Chrysler “sales bank” circa 1975:

    https://www.flickr.com/photos/that_chrysler_guy/8633687779/

    • 0 avatar
      danio3834

      Cool pic. I know a guy who was a District Sales Manager for Chrysler in the late 70′s and he said at one point he had 3 company vehicles assigned to himself, all Newports and a New Yorkers. He drove one, his wife the other, and the third just sat in the office parking lot.

  • avatar
    Brett Woods

    The original site of the Vince Lewis expose is:

    http://www.vincelewis.net/unsoldcars.html

    An interesting read. Is it fact or fiction? Are manufacturers building far more cars than are being sold?

    • 0 avatar
      gtrslngr

      Are most of the major manufactures .. specifically GM , FCA ,Nissan/Renault building more cars than they can sell ?

      Why yes they are !

      Are several of the smaller ones such as JLR etc doing the same ?

      Why yes they are

      Are they all to a number lying thru their teeth about sales – inventory and profits ?

      Why …. yes they are again .

      Is in fact ZERO Hedge full of sh*t 90% of the time ?

      Why yes they are .

      But are they completely wrong about this ?

      As a matter of fact ……. NO they are not .

    • 0 avatar
      niky

      A car company is in business to do one thing: Make money.

      Why would you be in the business of building cars just to scrap (as the author claims)?

      Any cars that go unsold long enough get sold at a deep discount price or sent to fleet use. To scrap a car instead of selling it at deep discount means a manufacturer is taking a 90% hit in terms of losses (I made that up) instead of merely breaking even.

      I find it rich that the article claims that manufacturers refuse to lower production for fear of losing tens of thousands of jobs. Guess what? They shed over 300,000 jobs due to the CarPocalypse, in the USA alone. A few thousand more now, six years later, won’t matter all that much.

      • 0 avatar
        Pch101

        The guy who wrote it doesn’t understand what “channel stuffing” is.

        Channel stuffing involves booking bogus revenues by pushing inventory to the next stop in the chain without any intention of ever collecting the cash.

        In the auto business, the way to stuff the channel would be to push cars that nobody wants to buy onto dealers, then using incentives that offset the “sale” made by the OEM to the dealer.

        Parking cars on a test track is not “channel stuffing.” The cost to build them was incurred, but the cars are not converted into revenue until they get to a dealer’s lot.

        If Nissan had been stuffing the channel, then they wouldn’t be parked next to the Nissan factory without a home. Cars that were channel stuffed would have been shipped to dealers.

        • 0 avatar
          tresmonos

          At the major OEM I worked at, I was told the transaction was when the car was gate released to the third party logistics companies.

          • 0 avatar
            sunridge place

            What years did you work there?

          • 0 avatar
            Xeranar

            That’s a fairly standard accounting practice in manufacturing. This came up recently when the Xbox One & PS4 launched as the PS4 numbers were units sold to individuals, the Xbox One’s were ones shipped to retailers. For technical reasons though MS couldn’t claim them as ‘sold’ because they had a industry-standard buyback agreement so units shipped were high but revenue was down.

          • 0 avatar
            Pch101

            With some retail goods, excess inventories will get shipped back to the manufacturer.

            Auto dealers don’t send cars back to the automakers, they just expect extra spiff in order to move the dogs.

            In any case, there’s no channel stuffing evident in the photos, either now or in the past. As noted, OEMs don’t book revenues for inventory that they are still carrying. The fact that a guy who runs a financial website doesn’t know something as basic as that is pretty sad.

        • 0 avatar

          When auto OEMs build vehicles for which they don’t have dealer orders, they book the built vehicles as an asset. For a while, the P&L doesn’t look so bad unless you happen to notice that cash flow has dried up. Then the auto OEM, Chrysler being the prime example, calls dealers to make deals with them to buy this excess inventory. Dealers wise up pretty quickly. Chrysler dealers would stop ordering vehicles knowing they could by the same vehicles for less via the sales bank. It became a cat and mouse waiting game between Chrysler and its dealers.

          When an dealer ordered vehicle leaves the assembly line, the dealers open floor plan credit line is immediately accessed. This dealer inventory buffering is what allows auto assembly lines to mostly run smoothly. It is quite expensive to start and stop assembly lines. At some point, Tesla will encounter the need to have dealer inventory buffering unless they somehow figure out a way to always keep production and demand perfectly aligned.

          Auto OEMs don’t have the authority to arbitrarily build vehicles and send them to dealers without an actual order, with the expectation of getting paid via the dealers open floor plan line. Its been known to happen, but not on a large scale. There are a variety of ways dealers can protect themselves. Lawyers are one way. If a dealer floor plans through a local bank with whom he/she has a relationship, the dealer simply tells the bank to put the business on “finance hold.” If the dealer’s floor plan limit is exceeded, the bank puts the dealer on finance hold automatically whether the dealer requests it or not. This doesn’t work quite so smoothly when the dealer’s floor plan source is the OEM captive. I always preferred to have local bank floor planning.

          There is also such a thing as “build out.” Dealers typically order enough stock in the spring to last through the summer selling season as a bridge to the next model year. Days Supply guidelines go out the door during this time period, and vehicles are often stockpiled. Sometimes there is “build out” of a particular model which might have its own intro date different from the rest of the OEM model lines. I recall a number of amateurs recently stating that GM was going BK again because there were huge days supply of the old Silverado pickup around. It was simply part of the transition to the new model which included plant shutdown for retooling.

          • 0 avatar
            Dave M.

            Great explanation. Thanks!

          • 0 avatar
            JohnnyFirebird

            The first dealership I worked at was a BMW one in Canada – I hear, and I could not have understood – that BMW would ship the amount of cars to a dealership that they wished them to sell, not that were ordered. None of the other companies I have worked for since have done this, so I could have had a basic misunderstanding of the situation, told to me by lot jockeys.

        • 0 avatar
          geeber

          I believe that the old “sales bank” used by Chrysler from the late 1960s until Iacocca took over was a form of channel stuffing. The corporation built cars without any firm dealer orders. As they piled up in parking lots around Chrysler plants, corporate personnel would then beg/cajole/threaten dealers to buy cars from the sales bank.

          Dealers who didn’t cooperate would suddenly find that warranty claims got “lost,” or that orders for models that were selling would be mysteriously “delayed.”

          • 0 avatar

            The Chrysler sales bank didn’t end when Iacocca took over. It took him awhile to get rid of it, and it returned later under different management. There WERE accusations of Chrysler retaliating against dealers who didn’t take “bank vehicles.” Not all dealers were in a position to take them.
            I never saw any evidence that there was actual retaliation. Those were tumultuous times and there was a LOT going on. Chrysler did “slow pay” dealer for warranty and there was a LOT of warranty expense because of damage to bank vehicles from sitting around storage lots. Imagine the damage that can occur when a thermostat rusts shut, for example. My era with this was as a Chrysler dealer/operating partner in Chicago in the late 1970s until 1984.

            One’s rep would call and say, “I have those Omni’s you’ve been asking for. They’ll be in the trunk of the St. Regis I’m sending you.” Many dealers were on COD or on “finance hold.” The sale of “bank cars” and warranty payments were certainly linked.

            Every month the “parts statement” shows up at the dealership. This is a billing for everything the dealer owes the factory for parts inventory, DCS systems, marketing materials, special tools, etc. This is offset by warranty credits. If the dealer owes the factory, they dealer sends the factory a check, and vice versa. Failing to pay would put a dealer on COD status. Things got so bad during the Chrysler crisis that Chrysler would try to collect for parts without immediately issuing the warranty credits. Certain savvy dealers would issue written credits to the factory, which really pissed them off. But there wasn’t much they could do about it.

            Dealers had to audit Chrysler on everything. One of their favorite tricks was to short dealers on “units in transit.” The dealer gets charged for the vehicle by the factory at their first opportunity and owes the dealers interest for in transit time and for the first two weeks of floor plan costs at the prevailing interest rate, which was the prime rate in those days. At 16%, this could be a considerable amount of money. They wouldn’t pay every vehicle, especially the ones where the in transit time was considerable. Close auditing within the dealership was mandatory and many dealers were screwed and never knew it.

          • 0 avatar
            KixStart

            ruggles: “One’s rep would call and say, “I have those Omni’s you’ve been asking for. They’ll be in the trunk of the St. Regis I’m sending you.””

            This reminds me of a very entertaining and informative article Baruth wrote awhile ago about life at a dealership.

            http://www.thetruthaboutcars.com/2012/02/avoidable-contact-dealer-vs-manufacturer/

      • 0 avatar
        Sigivald

        Yeah, Nissan would only scrap fifty thousand cars if they *literally couldn’t* sell them as cars for a net higher than the scrap net.

        I find that utterly impossible to believe.

  • avatar
    Kenmore

    Nice debunking.

  • avatar
    iNeon

    Those aren’t Chrysler Aspens.

  • avatar
    Volt 230

    Look like the previous gen Dodge Durango to me.

  • avatar
    Lou_BC

    And there are tons of Google photos of nude sunbathers………….

    Car companies scrapping new vehicles to keep the production lines going?

    and how did this dirty secret go un-noticed for the last 5 years?

    I’m sure Edward Snowden has those answers somewhere in his files ;)

    @gtrslngr – you always have all of the “correct” answers…….. fess up.

  • avatar
    Xeranar

    Lets go ahead and break this down for the obnoxious people:

    lets assume that a car maker can sell 1,095,000 cars in a given year or 3000 per day. Each car retails for 30,000 with a profit margin of 25%. Lets nominally assume that 50% of cars sell for approximately that profit margin. So 547,500 with a profit of 7.5K per car. 4,106,250,000 total profit. Now lets assume the remaining 472,500 sell with 3500 off sticker, for a profit of 2,190,000,000. Now the remaining 25 days worth of cars are just never sold, but because they’re taken apart for parts and scrap, lets say they only lose 50% on each car. That’s a loss of 843,750,000 or a total profit of: 5,452,500,000. Hence the structural overproduction is really not an issue.

    • 0 avatar
      th009

      25% profit margin? Only in Marchionne’s wildest dreams. 5% would be fantastic for a volume brand, and 10% for a premium brand. And you can’t realistically reuse parts (from previously-built cars) for new vehicles.

      SO in your model, 1M cars earns gross profit of $820M. $3500 in incentives on 472K cars will be a loss of $940M on those ($3500 exceeds the gross profit by $2000 per vehicle). The remaining 70K cars could be sold for scrap for maybe $5000 each for a loss of $23.5K per car, or $1.6B.

      Total loss for the manufacturer is $1.7 billion. Hello, bailout.

      • 0 avatar
        Xeranar

        Your argument is that my 25% is too high and that 5% is generous. Too bad industry reports don’t seem to back that notion. The last time I saw a report was nearly 10 years ago and the average return on a car was 7K on a transaction of 27K or right around that 25% sweet spot. If you want to average out based on discounts that their annual percentage return is only 5-10% that I could agree to but nobody in the auto industry is really selling a car at 20K and only making a grand on it.

        Also, a car not sold is a car not officially ‘made’ in that they can take off the interior parts, seats, engine components and re-use them or sell them for OEM. It would be inefficient to send them back for factory use but to re-use those seats and other parts as more or less ‘new old stock’ is certainly a measure they’ve used before. Regardless, them taking a wash of 50% on each vehicle perhaps low but still shows that structural overproduction isn’t a huge inherent risk.

        But the fact you used the term bailout on only 1.7 Billion in losses (after using seriously skewed math) seems to support a more personal and perhaps political notion than one based in economics.

        EDIT: To reiterate the point, if margins were that slim on individual units the car marketplace wouldn’t have lots, they would have showrooms where you ordered a vehicle and it was delivered. Nobody in their right mind would risk blowing the entire production system on less than 7% of your annual production. It just doesn’t make any statistical or economic sense. So your profit margin argument is completely devoid of honesty and reality.

        • 0 avatar
          Vega

          Guys, wouldn’t it be better to just consult current financial reporting from automotive companies than rely on reports you saw somewhere 10 years ago?

          Let’s compare automotive gross margins (excluding R&D, sales and administrative cost) and automotive operating margins (including all these costs) in Q1 2014, shall we?

          GM: Gross margin 6.0%, operating margin -2.1%
          Volkswagen: Gross margin 18.1%, operating margin 5.8%
          Toyota: Gross margin 17.8%, operating margin 7.1%
          Ford: Gross margin 8.4%, operating margin -1.5%

          Please note that these are pre-tax and pre-interest margins and are for the automotive segment only, the finance arm has pushed group operating margin very slightly into the black at Ford in Q1 (not at GM though).

          So, not a 25% margin anywhere. Your comment about how there would only be order delivery shows a profound lack of understanding of fixed cost.
          That’s not the only inaccuracy in your comment. Car manufacturers supply audited numbers for both produced and sold cars, no chance to fudge the numbers by disassembling.

          Interestingly, these numbers show that both GM and Ford seem to have their overheads better under control than VW and Toyota, but suffer from extremely low gross margins. Considering VW and Toyota are not exactly low cost producers, this is obviously a result of a profound lack of pricing power for both GM and Ford.

          • 0 avatar
            APaGttH

            You and your facts.

          • 0 avatar
            Vega

            I’m fun at parties.

          • 0 avatar
            Xeranar

            Alright, so you pulled operating margins to challenge my 25% but ignored the actual math backing it. My adjusted sales numbers brought that down to 18%. This appears to be in line with the gross margin at VW. So assuming that the margin is slightly lower (lets say 20-22% on MSRP) and the discounts get progressively heavier throughout the year you can easily reach those gross margins. Remember, this is on product sold vs. product produced, not the 25% I set as the original MSRP margin.

            That explains the differences right there, facts seem to not be your friend. I’m not sure after I laid the math out how you still reflected on the 25% that way…

            As for the fixed cost of industry production, if the value difference on a car was 5% there would be no mass production as nobody would willingly invest the millions if not billions to chase down nickels. Margin production can work on products that can afford to take up space and have limited capital investment, nobody cares if a toaster was produced 6 months ago or two years, a car cannot afford to sit that long and with such a slim margin of profit at the start it wouldn’t be mass produced in that way.

            Disagree with me on the kind of production but don’t try and call me on the carpet when my math is perfectly fine. I used a simple example to explain structural overproduction.

          • 0 avatar
            Pch101

            Looking at financial statements would make the most sense. The automakers aren’t nearly as profitable as you think.

          • 0 avatar
            Vega

            First of all, in the long run cars produced is not higher than cars sold, no car company is filling lots over several years, at some points these cars get discounted (e.g. sold to rental companies). The whole taking apart and rebuilding thing is BS. It also would not help with structural oversupply, as the number of superfluous cars would increase every year.

            Btw. nice goalpost moving here. Your first comment was “Each car retails for 30,000 with a profit margin of 25%”, you didn’t talk about a gross margin, you talked about profit. The definition of profit however doesn’t start above the operating profit in the P&L. However your car manufacturing has to pay for all the overheads and financing cost also. There is no car company in the world with a double-digit net margin and thus NO car company that could justify producing too much and taking a 50% hit on a significant part of production. That’s why car factories slow production lines when demand is low, and don’t continue running at 80-100%. It still affects profitability, but not as much as building cars and tearing them apart again.

            The real problem and overcapacity is with companies like Ford and GM. Given their overheads as a % of sales are lower than VW and Toyota, the dismal profitability means that either they still have too many factories (which leads to low utilisation and increases the cost of production per car) or they can’t move the metal at prices that provide sufficient margins.

          • 0 avatar
            wumpus

            Even mighty Porsche (18%, presumably operating margin) isn’t that close to 25%. Scary to think what the company was like as a hedge fund that also made cars.

            http://www.thetruthaboutcars.com/2014/03/dial-911-for-profit/

          • 0 avatar
            Xeranar

            Vega – The only goalpost moving I’ve ever done was on my High School football team.

            A.) My example was simplistic with intent to show structural overproduction is not a killer.

            B.) Whether I used ‘profit’ in the most business-friendly way is inconsequential since I was ignoring overhead simply because it was inconvenient to explain further into the argument. In most of these cases being a large multi-national corporation the transfer pricing alone hides a few percentage points of profit. Not to mention their debt loads also obscure their per-unit difference.

            C.) 25% is just a good round and simple number to use. I didn’t care or think it was indicative of the auto industry. It was just an effective number, it could have been 10% and had the same effect.

            D.) My simple adjusted downward MSRP 2nd margin number was the one meant to show the overall decline in profit over the course of a selling period. If I normally explain it in class to students I generally do a 1/5th design so that even if the bottom 40% of production is at cost or taking a bath on the company can still turn a profit.

            I’ll be honest, I don’t get why the armchair economists get so up in arms in my example. I could have called it widgets and your whole rigmarole would have ended right there.

            You’re right though, the auto industry’s capacity is largely too high due to expansionary policies in good years but that becomes an issue of institutional overproduction vs. structural. If the auto industry decides that consciously they need to reach these overproduction numbers or build far past demand then we have a problem.

          • 0 avatar
            danio3834

            “It still affects profitability, but not as much as building cars and tearing them apart again.”

            This right here. The logistics of disassembling the vehicles would be tremendous and costly. There are no “dis-assembly lines” in place for this purpose. It would be more costly than pushing them directly into a shredder.

          • 0 avatar
            Pch101

            “My example was simplistic with intent to show structural overproduction is not a killer.”

            Your example doesn’t really work, on a number of levels.

            Overproduction is a problem. Excess inventories do produce losses when they do happen. Your inflated numbers understate the problem.

            But in any case, automakers don’t address overproduction by scrapping cars. Rather, they discount the excess and slow down future production.

  • avatar
    korvetkeith

    Thanks for this. I was going to email y’all right away. The old durangos made it obvious this is sensationalism. I love ZH but it may be time to cut myself off from the doomsday fantasy website.

  • avatar
    APaGttH

    Of the big eight North American manufacturers, six of them, including Honda, had inventory levels in excess of 80 days – February 2014 data. I’m not your monkey boy, do a search (it was already posted on TTAC).

    Nothing to see here

    • 0 avatar
      redav

      And Cadillac has 700+ days of inventory for the ELR. But when you only sell a dozen a month, all it takes is one productive day at the plant to cause the number to skyrocket.

    • 0 avatar
      sunridge place

      The two most common dates for hysterical inventory articles quote Feb 1 and Dec 1 days supply. This site has plenty of history on those dates. The usual suspects around the interwebs do too.

      Dec 1 takes a snapshot of November sales (typically an average to below average month) against inventories that are about to:

      1. Have one of the biggest sales months of the year (December)
      2. Have shutdown time around the holidays which takes out a week or two of production typically

      Feb 1 takes a snapshot of January sales (always the slowest month in the industry) against the building inventories coming off of the holiday shutdown and moving towards the kickoff of the spring selling season.

      The Zerohedges and Niedermeyers of the world are either too stupid to understand this OR are using the usual tactics of taking small snapshots of data and weaving them together in a narrative to deceive while hanging on to the thread of facts.

      It can be hard to figure out if they are just too stupid or just know when to weave their deceptive narratives together to feed their habit.

  • avatar
    Pch101

    Zero Hedge is utter garbage. It is to finance what The Onion is to news, except that not everyone who reads Zero Hedge is in on the joke.

    The Sunderland photo is a Reuters photo from January 2009. http://www.theguardian.com/business/gallery/2009/jan/16/unsold-cars#/?picture=341883529&index=0 It obviously isn’t current.

    The question here is whether “Tyler Durden” of Zero Hedge is gullible enough to believe this tripe, or if he’s exploiting the gullibility of his readers.

    • 0 avatar
      Lorenzo

      Actually, I think you’re giving the Onion a bad rap. They try for satire, but the world is so screwy these days that a number of their satirical articles have turned out to be true, or close enough for government work.

  • avatar

    Certainly OEMs have in the past built vehicles and stacked them. Built them and sent them to the crusher en masse? I don’t think so. There are accounting fraud issues associated with that. The guy who wrote the piece is just an idiot with no understanding of the auto industry. There are many of them out there these days. It used to be one had to make one’s bones to be allowed to write about stuff. At the least, you had to prove you knew what you were talking about. The Internet changed all of that, for better or worse.

    • 0 avatar
      SCE to AUX

      +1

      An important problem with conspiracy theories is the urge for witnesses to talk. I’d expect the guy operating the crusher would want to tell someone about the thousands of shiny new cars he destroyed, not to mention who’s paying him to do it.

      • 0 avatar
        Lorenzo

        That’s an excellent point that conspiracy theorists ignore. If you want to keep a secret, you need to limit the number of people who know it to the bare minimum. With this “conspiracy”, there are far too many people with too little skin in the game to keep their mouths shut, and there’s nobody talking about it but the theorists.

  • avatar
    The Heisenberg Cartel

    Ha. I remember some of those aerial photos being used as “proof” that Audi was taking back thousands of off lease vehicles and storing them as they wait for the crusher.

  • avatar
    sunridge place

    Ed Niedermeyer’s twitter account was a riot on this story.

    OMG Look at this article!!!! OEMS are doing it again!!!!! Here’s the PROOF!!!

    Uhhh…there may be a few problems with some of the pics but IT IS STILL HAPPENING!!!! TRUST ME. IM A CONSULTANT!!!!

    Uhh…I don’t agree with some of the economic points in the article. But here are some other random things that PROVE IT IS HAPPENING AGAIN!!!

    Ed is half a step away from full blown zerohedge. I worry about his sanity these days.

    Even our own 28 cars later dramatically posted this. I called him out and got a response that ‘even if one of these pictures is true, it is indicative of an issue’

    Niece piece Ronnie. Perhaps the same approach could have been taken on the jalopnik GM PowerPoint piece? Just sayin’

    • 0 avatar
      28-Cars-Later

      Ronnie brings detailed analysis to the issue, and he also points out something I certainly didn’t even think of: the age of the pictures. If those pictures were from five or six years ago its not nearly as alarming as something current. Could there be an ebb and flow to current things as many commentators pointed out above? Perhaps, in which case I would be dead wrong as I don’t fully understand the inner workings of the auto mfg industry. I’m still a bit skeptical but am inclined more to agree with yourself and others for the moment on the “calling BS” on the original story.

      “In 2009 the Sunderland test track couldn’t be used to test cars because it was filled with unsold cars.”

  • avatar
    MrGreenMan

    If only it were true – fields of 4-year-old Aspens and Durangos – maybe they’d accept ten cents on the dollar on the MSRP and, for some new oil and some new rubber, seven-seat Hemi-powered quasi-luxury!

    With the big hemi, that torquey get-up-and-go made the giant pigs fun to drive.

  • avatar
    Maymar

    Every now and then, there’ll be a lot around the Toronto area fill up with Chrysler LX cars – a year or two ago, they’d use one of our local theme parks (with a fairly visible parking lot) to store LX cars, and they’ve used Downsview before. Never have seen local scrap yards filled with soon to be crushed LX cars, mind you. Obviously, Chrysler ships them off to where they can keep this a secret.

    Of course, it also totally neglects that car sales fluctuate on a monthly basis, and union agreements don’t.

  • avatar
    Compaq Deskpro

    I remember the article about Nissan’s car carrier, and that ship alone seemed to have a huge sea of cars on it. Several shipments of that amount, and you’re filling a huge lot.

    It’s far more plausible that if overproduction is that bad they are going to the dealers and being sold at a deep price cut, like GM did with the last trucks.

    I’m also skeptical of his sole evidence being Google maps. Google maps is not a live feed of the world, its a collection of static images that is slowly updated and improved upon. Many of those images could be 5+ years old, some of those lots may not exist anymore.

    I think the author found something cool on Google maps and ran with it. There is cool stuff on Google maps, its fun to zoom around the streets looking for exotic cars. Aston Martins are the most common.

    Edit: Never mind, this article was a ripoff of a 5 year old Jalopnik article.

    http://jalopnik.com/that-zero-hedge-article-on-unsold-cars-is-bullshit-1578124255

  • avatar

    Whomever dreamed up this notion that auto OEMs might build to scrap has quite the imagination. It used to be that an auto OEM might put a vehicle in “field service” for a short while, then sell it as used at auction. But crushed? Only in the VERY rare situation where a new vehicle doesn’t pass safety specs and can’t be reasonably repaired.

    • 0 avatar
      geeber

      I remember reading that AMC ran some never-registered 1977 Matadors through auctions as used cars, because dealers could not sell them to customers.

      • 0 avatar
        Lorenzo

        That’s an example of why cars don’t get crushed, they get marked to market. It’s always better to lose 10% (or whatever the loss is) of your investment than 100%.

        OTOH, there have been special cases where new cars have been crushed. Honda did it with a couple thousand of their early 600s in Seattle. The cars had defective heaters and the cost to repair would have produced a loss per car. The Japanese VAT refund for exported cars and insurance made it cheaper to crush them.

        • 0 avatar
          Steve65

          ISTR a story about Honda shredding 10s of thousands of brand new but flood damaged cars from Thailand a few years ago.

          Edit: My memory exaggerated. It was 1055 cars, in 2011.

    • 0 avatar
      jhefner

      Another example was the 4,703 Mazdas that were on the automobile carrier “Cougar Ace” that nearly sunk; and spent days lying nearly on it’s side with the cars hanging on to the deck by their chains. It was feared that battery acid may have leaked out, and in general the manufacturer couldn’t guarantee there wasn’t any damage to them from the ordeal; so when the salvaged ship was brought into port; all of the cars were offloaded and crushed on the spot.

      http://en.wikipedia.org/wiki/MV_Cougar_Ace

  • avatar
    Land Ark

    I saw this story on FARK over the weekend. I felt dejavu looking at the pictures, knowing I had seen them before. And I knew it was on Jalopnik but I couldn’t find the post. I have since had my memory confirmed (for once).
    Using the same research method I can tell you some startling news about my life:
    Based on pictures of my house, the car I drove to work today is still there! And my wagon is missing, I’m going to call the police after I finish posting this and report it stolen. I don’t know how I got to work today, thinking I drove the car that is clearly in my driveway.

  • avatar
    Stumpaster

    that zero hedge article was doing well with my BS meter till the very end:
    “Some car manufacturers moved their production over to China, General Motors and Cadillac are examples of this. They are then shipped over in containers and unloaded at ports. However they are now being told to put a big halt in their import into the U.S.A. as they just can’t sell them in the quantities they would desire. Consequently Chinese car parks are now filling up with brand new American cars.”

    yeah, OK!

  • avatar
    rudiger

    Something I have yet to see mentioned are the UAW rules that required auto workers to continue to be paid at a high percentage of their full wages even if the production line was shut down. This was another huge consideration the car companies had to keep in mind when deliberating about shutting down production due to slow sales. So, it was still cheaper to keep building the cars and storing them.

    But this was decades ago and don’t know if the same rules are still in effect.

    • 0 avatar
      geeber

      That was the infamous “Jobs Bank,” which I believe was abolished in the bailout of GM and Chrysler.

      GM, Ford and Chrysler had offered a series of buyouts to UAW members and white-collar workers, and closed several plants, even before the bailouts, so their production capacity should be much more closely aligned with market share by this point.

  • avatar
    319583076

    TTAC got listed as a source for a similar article debunking this “story” at bloomberg.com: http://www.bloombergview.com/articles/2014-05-19/the-truth-about-auto-sales

  • avatar
    stanczyk

    You can expect everything, considering nowadays ‘corporate creative finance managment’ …

    [GM crashed thir EV1 electric car (of course it was concept car experiment, but still these cars were wroking perfectly and people would pay for them .. if they got a chance ..
    -> can somebody understand \'corporate mentality\'.. ?!?]

    • 0 avatar
      niky

      GM donated EV1s to schools for use in workshops and classes. They also donated one or two to museums.

      The rest of the EV1s were scrapped because even if GM had sold them on the understanding that these were used cars, they would still have been legally and morally obliged to provide technical support, warranty service and parts for these cars. The program had already cost them a billion dollars, with all leases operating at a net loss. They would still be spending tens of millions keeping that fleet on the road past the end of the project… still operating at a net loss.

      That’s something which they were not willing to undertake at the time. The EV1 only ever made business sense to meet the ZEV CARB quota. Operating at a loss to meet that quota was good business sense if it stayed in place, as you could justify that loss with sales of other products. Since it didn’t…

      Even worse, any problems, including fires and possible explosions from using newer, more powerful batteries in these cars, would still be blamed on the manufacturer.

      This is no different from Chrysler crushing prototype Vipers. Experimental cars are a huge legal and financial liability for manufacturers if sold to the public and used on the road.

      Corporate mentality is not to operate at a loss. That’s government mentality, since the government can always print more, borrow more, or raise taxes. A corporation can’t.

      -

      The difference today, is there is a customer base willing to spend on these things… but the numbers are marginal, unless you’re building high-margin luxury goods, like Tesla is doing…

      • 0 avatar
        niky

        To note: it doesn’t matter that there were some people who wanted them. They only wanted them at the prices GM was giving for the original, experimental leases. If GM would charge what it actually cost to build and run the car, those numbers would shrink drastically.

        And we’re talking a wait-list in the hundreds here, not in the tens of thousands needed to justify continuing production of the car.

      • 0 avatar
        danio3834

        Thanks for typing this out. I gave up trying to explain this about a year after Who Killed the Electric Car? came out.

  • avatar

    Within the business we refer to “push marketing” versus “pull marketing.” I have no idea where this term “Channel Stuffing” comes from….. perhaps from Japan where they call “Divisions” “Channels?” As I’ve previously mentioned, starting and stopping auto assembly lines is quite disruptive. Imagine how that would work in this era of “just in time” parts procurement. It became de regueur for OEMs to raise the MSRP price to include the cost of expected “behind invoice” incentives, whether they might be factory to consumer rebates, OEM to dealer purchase incentives, dealer “trunk money” sales incentives, rate buy downs known as subventions, and subvented leases. This also served to move the gross profit dealers made from “above invoice” to “behind invoice.” It made it possible for dealers to sell to consumers at “invoice” while still making gross profit. It gave dealers options in compensating their sales staffs which drove a LOT of talent from the business. Any one in the industry who claims this modern era is more transparent to consumers then previously is either lying, stupid, or has no understanding of the history of the auto business.

    To be sure, it isn’t the consumer’s business what a dealer paid for a vehicle, any more than it is their business what a jeweler paid for a watch he/she is selling, etc. But to claim transparency when the opposite is true grates me greatly.

  • avatar
    fishiftstick

    Sites like Zero Hedge are great, because they convince conspiracy theorists to put their money where their mouth is. That way, the rest of us can profit from their foolishness.
    (Now there’s a conspiracy theory…)

  • avatar
    pragmatist

    I am amazed that “investigators ” actually try to use Google sat view and street view as evidence. These are old pictures. Leads me to assume they are ignorant hacks.

    I just looked at my yard. The latest possible date was last summer (trees in full bloom but recent construction missing


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