By on May 20, 2014

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While our own Ronnie Schreiber may have taken Zero Hedge to task for its inaccurate story on unsold cars, Australia is facing a situation where rising inventories have created a buyers market, just as local production of automobiles is winding down.

Australia is a notoriously competitive auto market, with more than 60 brands competing for just 1 million units annually. Local outlet Carsguide is reporting that there are currently 150,000 unsold cars sitting in the country, with more arriving from global factories in each, leading to a massive oversupply of new vehicles.

Holden chairman Gerry Dorizas spoke to Carsguide, and provided an interesting quote in light of the fact that Holden will be ending local production by 2017

How can companies sell cars cheaper in Australia than in Europe…It’s not sustainable. I believe they (prices) will go up at some point in time. At some time this competition for prices will create a problem in the network…But that point has not arrived and car companies are rolling out new incentives with every passing week. 

When production of the Commodore and Ute end, Holden will be reliant on imports from South Korea, Thailand and possibly Europe, as it seeks to offer a full line of Holden vehicles sourced from GM’s international operations. The brutal competition in Australia, along with changing market tastes, led to the demise of the Commodore and Australian manufacturing – undoubtedly a loss for enthusiasts and Australian industry. But these same forces have also allowed Australian consumers to get better deals on cars, particularly in the compact segment that is now replacing the large sedan segment as the passenger car of choice.

To the outsider, the stories from Carsguide, Zero Hedge, and elsewhere may be perceived as evidence of poor discipline by the auto manufacturing sector, and in many cases, they’d be correct. Inventories are rising back to pre-recession levels and easier credit are undoubtedly helping spur auto sales in the United States. Industry sources tell us that 2014 has seen record transaction prices, meaning that consumer spending, and by extension, auto financing debt, should be at record levels.

On the other hand, the current economics of the auto industry dictate that under-utilized capacity is a bad thing, and factories must be kept humming above a certain level (typically 75 percent of capacity) to remain profitable. Labor laws in many jurisdictions make it cheaper to keep cranking out cars than to lay off workers, even temporarily. Once they leave the factory gate, they become the dealer’s problem.

 

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25 Comments on “Rising Inventories: A Race To The Bottom?...”


  • avatar
    carguy

    Australian cars are still a good deal more expensive than in the US. Now that there is no car industry to protect its time for them to remove any remaining tariff and regulatory barriers which should help car buyers.

    • 0 avatar
      RobertRyan

      There is a slowdown for locally made cars including Toyota, New Government uncertainties and the fact that Holden and Ford models will become “orphans” does not help. Still it looks like that slowdown is pretty temporary.with projected sales on track to be on track to be near the recod number of cars sold last year.

  • avatar
    Pch101

    Based upon last year’s sales of 1.1 million units, 150k units is about 50 days worth of inventory. Not much by American standards.

    There are expectations of an economic slowdown and the Aussie dollar has been weakening. There may also be uncertainty about changes to the company car tax, which would reduce demand for new cars, and grey market import rules, which would depress prices generally if implemented.

  • avatar
    gtrslngr

    ZERO Hedge may of used improper evidence to prove their point . But the fact is the point they were trying to make was and is absolutely correct . Fact is had they dug up the appropriate evidence they would of discovered the situation is ten times worse than they initially assumed

    Fact is … almost every automotive manufacture doing business in the US currently has a glut of back stock that they are jumping thru hoops to keep hidden from the general public as well as their investors

    Someone out there about to say the SEC has rules against doing that ? Well then … guess what ? That person/persona would be dead wrong !

    Here’s the inside skinny . The ONLY rule/law … especially enforced rule/law the SEC has in reference to what any shareholder owned company must do when reporting their Facts & Figures is that those facts and figures must be reported to all equally regardless of status , amount of cash invested etc

    There is absolutely NO rule or law saying the Facts & Figures a company reports need be in any way ;

    Accurate
    Up to date
    Timely ..

    … or even remotely resembling the truth . As long as Joe Schmoe gets the same information and at the same time Mr Mega Bucks does …. all is good . No harm . No foul .

    So do we have a severe inventory problem here in the US ? Do the investigative reporting and you’ll see … damn right we do .

    And is that the Road to Perdition for any manufacture ? Once again . Damn right it is

    • 0 avatar
      Ron

      What is your evidence that “almost every automotive manufacture doing business in the US currently has a glut of back stock that they are jumping thru hoops to keep hidden from the general public as well as their investors”?

    • 0 avatar
      johnhowington

      following zero hedge’s advice on anything will make you a very poor individual.

      • 0 avatar
        Lorenzo

        Yep I knew a guy who reads Z-H religiously and has lost a good chunk of his retirement nest egg with his investments. But a segment of Wall Street lives off guys like that, because, as they say, there’s one born every minute.

  • avatar
    heavy handle

    150K “unsold” in a million car market is 60 days of inventory. Is that unusually high for Australia? It would be considered normal in the US.

    • 0 avatar
      Big Al from Oz

      Hence our normally higher prices. Supply and demand.

      As for our prices, the Australian dollar has risen in value especially since the GFC. The auto importers are generally given a price based on best educated guesses for a year from the manufacturers.

      Many products in Australia are still moving down in price due to the GST and automobiles is one of them. I do expect they are at or near the bottom.

      The average cost for a vehicle in Australia might be higher in a direct conversion of currency, but like fuel you’ll surprised at how much cheaper they are.

      A Toyota Corolla in Australia can be had for $20 000AUD which is $18 600USD. The base wage in Australia is around $16 US ph. Are average wage is around $72k per annum.

      So, as you can see they aren’t as expensive as you would think. We even pay a similar amount for fuel. The US pays 2.6% and we pay 2.8% for a US gallon of fuel in relation to our weekly wages.

  • avatar
    Hummer

    Start shipping more commodores over, they finally got one in the local small dealer, and it was sold immediately, they can’t get any more for the rest of the year.
    Also, screw the Bowtie, this car actually looks worth the price tag with the Holden badge, the Bowtie if anything hurts this vehicle. Call it the Chevrolet Holden Commodore SS

  • avatar
    Compaq Deskpro

    I hate to say it, but cars are too good and too expensive to be really profitable at the low end. They need to be cheaper and more disposable. Maybe this is the reason for all the turbos, planned obselescence.

    • 0 avatar
      Hummer

      That’s what I like about these cars, and probably why they still use the old style 6.2l, more reliable.

    • 0 avatar
      DenverMike

      Exactly. Current V8s are so good that changing their oil and filter is a waste. Just top off. It’ll eventually have new oil anyways. And its V8 is gonna outlast the rest of the truck regardless.

      • 0 avatar
        Big Al from Oz

        @Most DiM
        WTF?

        Again, another DiM’ism.

        You are totally incorrect (as per usual).

        Service your vehicle in accordance with the manufacturers schedule, using the specified fluids and lubricants as a minimum.

        Boy, you can come up with some retarded garbage.

  • avatar

    There is always an ebb and flow in the balance between production and consumption. These days everyone seems to want to rush to interpret data because there is so much of it out there and everyone seems tho think they have the historical perspective to interpret it. I’ve been looking at 10 day reports and days supply numbers for over 4 decades. Consumption goes up and down depending on a variety of factors. For example, we saw weather slow down consumption this past winter. That consumption loss is being rapidly made up for this spring. There are “build out” considerations when old models are phased out and new ones introduced. Typically, the inventory buffering system accomplished via dealers and OEM incentives smooths things out as herky jerky production isn’t efficient.

    But there is nothing like major events to stop consumption in its tracks and produce serious inventory overhang by suddenly depressing consumer optimism. A crisis like 911 or the Cuban missile crisis would be examples. Sudden spikes in the price of fuel would be an example. A meltdown of the stock market is another. How about a near total credit freeze or spike in interest rates? Or a complete loss of consumer confidence in a particular manufacturer.

    Absent anything of this magnitude amateur prognosticators seem to be hyperbolic in an effort to create a tempest in a teapot to drive web traffic and/or readership. If there is an inventory problem in the auto industry here in the U.S. you can bet Automotive News, WARDs, and some others would be ALL OVER IT. These are not shills for the industry.

    • 0 avatar
      Ron

      Ruggles is 100% correct. And let me add one more thing, while manufacturers do make mistakes in their production planning, there is no financial reason to overbuild. Eventually the piper must be paid — either huge incentives or factory shutdowns.

  • avatar
    thegamper

    I think a good monthly article by TTAC would be a list of vehicles with the highest inventories. Perhaps correlated with current incentives on said vehicles. When looking for cars, I will always take into account vehicles unloved by the market if there are great deals to be had, many times it is also on vehicles that are technically superb vehicles and even ones that have received critical acclaim, just not taken hold in the market. Ford Flex is a good example. Great vehicle, nailed to showroom floors.

    • 0 avatar
      PrincipalDan

      Good request and good point.

      One oddity of the supply and demand curve to me has been the Flex. Not selling well new but silly high resale used on the dealers lots. Why? You can’t sell a new Flex but everyone wants a used one? That doesn’t make sense.

  • avatar
    APaGttH

    Holden always got better color choices than Chevy or Pontiac on the VE/VF platform cars.

    No screaming yellow (other than the Monaro/GTO for one year) and I have to admit, I like that green – with a tan leather interior – in a wagon – with a LS3 engine – manual.*

    Thank you.

    * Ya I get it – me and maybe 50 other people in North America would buy one. *sigh*

  • avatar
    sunridge place

    Prediction. In the next 30 to 60 days, a couple of OEMs will announce a week or two of additional summer shutdown in a few plants and the usual clueless suspects will howl and scream as if that is some sort of proof that zerohedge and others were right about this hidden glut of vehicles and that channel stuffing is back!!!!

    Those people, of course, will be wrong and probably are too clueless to even know why.

    Australia is running a 50 to 60 day supply and it is a story? Really??

    I’m also a little confused by the statement that rising inventories are boosting sales in the US.

    • 0 avatar
      bball40dtw

      The (B&E’s Daily Dildo) article is even worse. God Forbid GM, Chrysler, and Ford stock up on full-size trucks that are outpacing the market. Ridiculous.

      (edited)


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