By on November 21, 2010

Forget about Europeans complaining about missing parts. Over in America, there is an acute car shortage. Dealers blame who they always blame: The manufacturers. “They’ve cut back production so much that we’ve run out of cars,” Boston dealer magnate Herb Chambers tells his hometown paper, the Boston Herald. He says he had to “beg, borrow and steal” Cadillacs from dealers in other parts of the country. Down at the South Shore, dealer Dan Quirk loses 60 to 90 sales a month. “The Big Three just don’t have enough manufacturing capacity any more,” kvetches Quirk. “Some of the automakers, particularly General Motors, closed a lot of their plants when the meltdown hit.” Supposedly it’s not just a Bostonian phenomenon. Supposedly. At closer look, it might be a fire breathing, rip-snorting chimera.

“The average U.S. dealer had just a 75-day inventory of domestic cars and light trucks on hand during October, down from a 146-day supply in early 2009,” a big-eyed Herald cites WardsAuto.  But if you really look, and if you read beyond that sentence, you’ll see that Wards calls a 60-70 day supply “normal.” In September, the average inventory was 64. Inventories are up, not down. Somehow, the Herald forgot to mention this item.

Supply is slowly getting in sync with demand, and manufacturers echo that sentiment: “When we emerged from bankruptcy in July 2009, we restructured our business and got our capacity in line with what demand was at that time,” GM spokesman Tom Henderson said. “That’s a situation few dealers are used to, but it’s actually good for business.”

Wardsauto doesn’t see signs of a sudden run on the dealerships. For November, they project a daily sales rate of 35,504 and a slight gain of 1.3 percent over October. They maintain their projection of 11.5m cars sold in the U.S.A. by the end of the year.

J.D.Power agrees in principle, but is even more cautious. They expect November SAAR at 12.2m units, unchanged from October, but up from the miserable 10.9m SAAR in November 2009. They also expect 11.5m cars having changed hands by year end.

For 2011, J.D.Power sees “a moderate level of risk with automotive sales. ” Which caused them to slightly down-revise their next year outlook to 12.8m units in total sales.

So why the sudden talk about car shortages in Boston? Let’s get our tinfoil hats off the rack and look at the GM stock. What, no post-IPO pop? On the day of GM’s IPO, Ford gets downgraded from “buy” to “neutral” (translation: dump it, fast) by an analyst who echoes the cautionary outlook? Could it be that a New England investment banker or someone at the Boston Consulting Group (advisors of the Treasury) had a cocktail with someone at the Herald? Could the article have been written under the influence of said cocktail?

Only by wearing beer goggles can one overlook that the leading scorekeepers of the industry don’t see signs of shortages. If they see a shortage, then it’s a possible shortage of buyers.  Nothing dramatic, but the domestic market is expected to remain as flat as a lake for a while. The stock market doesn’t like flat.

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20 Comments on “OMG! American Dealers Run Out Of American Cars!...”

  • avatar

    The government needs to figure a way to create more buyers, they’ve got production down nearly pat, how hard can it be?

    • 0 avatar

      The government has thrown enough spaghetti at the wall to see what sticks during this recession.
      Another cash 4 clunkers stimulus is not a sound way to grow the market.

  • avatar

    Every dealer I see – domestic or foreign – has plenty of cars.

    • 0 avatar

      Our dealership is over run with Cadillacs. Mercedes we have a short supply of, but Cadillacs are full. We have no room for any more. It must be a thing in the Detroit area, were they fill our dealers up, but ignore the rest of the country.

  • avatar

    60 days supply is the desired number. The problem is still the number of dealerships. The Big 3 still have way too many dealers, so that 60 day supply is spread pretty thin. Compare that to the Asian brands. Much fewer dealerships = more cars on each lot.

    This situation is why I left selling Fords and went to Hyundai. My old Ford dealer has 7 Fusions on the lot today. My Hyundai dealer has 60 Sonatas. Which one is the better place for a salesman?

    The 60 day supply looks good on paper sitting in a boardroom in Detroit, but out in the field each dealer sees fewer cars on his lot than he would like.

  • avatar

    “If they see a shortage, then (it’s) a possible shortage of buyers.”

    Quite… and not only of buyers, but also of buyers with money. Consider (a) the surge in Hundai/Kia sales, which is typically ascribed to the appeal and quality of their product line, (b) the numerous new, fully-equipped offerings in the compact and subcompact segments, often credited to concern about fuel prices and society’s eco-awareness, and (c) the rising prices for used cars, thought by many to be CfC fallout.

    Myself, I sense the driving force is that we are in a depression — concealed with entitlements like food stamps, 99-week unemployment insurance payouts (a.k.a. welfare), and fraudulent jobless stats — and that our economic debacle is accelerating. (The only reason we don’t have soup kitchens is we do handouts differently these days.) Part of the proof is in the housing markets, where analysts are (finally) forecasting a horrific year to come. We are collectively broke, jobless, and up to our ears in debt. Accordingly, we are cutting back everywhere, and the end of this life-on-the-cheap paradigm is nowhere in site. The new, tiny Caddy concept can be the poster child for this reality, because it says more about what automakers really think than any PR spin.

    BTW, there is nothing even remotely market-driven about GM’s share price. Washington and its countless friends can do anything to its share price they want to – and can in fact manipulate the market in general. That’s why I didn’t short anything during the runup to the November election, and still haven’t. If I do soon, (Ford is tempting), I won’t ride the shares down long. I have little doubt that for the next while any dip is a pre-planned short squeeze, and that the Treasury et al can drive the Dow up 1,000 points from any level, at any time they select.

    • 0 avatar

      The bottom line is that the manufacturers don’t care if the dealers have “enough” cars. They are only concerned with maintaining that 60 day supply, minimizing discounts and maximizing profit per unit. After the last several years of restructuring, the manufacturers can be profitable at these levels, but they aren’t really concerned about the dealers’ profitability – if a few hundred more dealers drop off, they wouldn’t cry.

    • 0 avatar

      I agree with dwford – eliminating dealers through bankruptcy and then arbitration was messy and expensive and bad pub and all that. My foil hat theory is that the manufacturers figure “let them stay in business, we’ll starve them of units while macroeconomic conditions are still poor and our cost structure is lean. Let the market eliminate excess dealerships.” I certainly sympathize with the employees. This is the realignment of resources (human and otherwise) to other parts of the economy (or world unfortunately). 

  • avatar

    Ultimately, the way cars are bought in America is stupid. In theory, you can go on a manufacturer’s website and play with the fancy “build your own” tool and make the perfectly optioned car of your dreams. But the reality is everyone “needs” to buy a car TODAY. It would make so much more sense to build to order. Then inventory would consist of a few demo units and a couple of each model for the emergency replacement scenarios. Everything else is order it and it comes in a few weeks later. Seems to work well on the other side of the pond.

    • 0 avatar

      I absolutely agree, that makes total sense. I would rather have exactly the car I want built for me, and it would alleviate a lot of the issues we have had over the last few years.

    • 0 avatar

      coming from Europe where 99% of the cars are built to order – I can tell you it is better to be able to just buy a car. In Europe the manufacturers make everything an option (try to buy a BMW and you’ll understand) and you have to wait 3+ months even for not so popular models. There the manufacturers also give you 10 engine options. while I think I’d like to have smaller engines, I don’t think offering a Golf with 60 hp, 75 hp, 90 hp, 115 hp, 160 hp and the same for diesel engines really is a good idea. In addition half of those engines are old designs they only offer to be able to offer the “starting at 20,000 euro” slogan.
      I also would have more buyers remorse when I order a car now and over the next 3-4 months before I receive it I see better offers. Also, I typically want to buy a new car when I need one. when my car breaks down or is in an accident, I don’t really want to wait for a new car.
      Sure, in the US I have fewer choices to individualize my car, but I rather pay $ 5,000 less for a similar car and don’t car that my neighbor has the same CD player. the expensive distribution system in Europe is one of the reasons why cars are so much more expensive (even considering tax). and again, if you want to order individually, your local BMW dealer already gives you the choice. Except that the $ 35,000 base price BMW will cost your $ 60,000 just to get a steering wheel.

    • 0 avatar

      While we might benefit from a better built to order system, car salesmen would lose a lot of sales if customer had to wait weeks for their car.  So much of car sales still works on impulse and driving out the door with your machine.

  • avatar

    Myself, I sense the driving force is that we are in a depression – concealed with entitlements like food stamps, 99-week unemployment insurance payouts (a.k.a. welfare),

    tparkit, I hope nobody you care about finds themselves out of a job.  You make it sound like everybody who isn’t working rather be home watching Oprah.  Have a happy Thanksgiving and don’t choke on your turkey.
    I see no shortage of cars at any of the dealers I drive by.  Oddly enough, around here you now have to travel quite a distance to find domestic stand-alone stores.  Plenty of BMW and Merc shops though.  Build-to-order sounds good, and for me, it is.  But many folks are of the “I want it now” types who don’t want to wait.  For them, lots filled with choices makes sense.
    The issues in Germany highlight the pitfalls of just-in-time delivery.  But overall the benefits (there’s that nasty word again) outweigh the negatives.

    • 0 avatar

      tparkit has good points. He’s not attacking the out of work, but the system that supports/encourages them being out of work (I’ve been in it myself… :P).
      Anyway, the US is in a serious financial meltdown and someone claims that they don’t have enough cars? The last thing I want is some fat new car payment (the wife wants a Grand Cherokee). Screw that… let’s see where our investments are in a couple of years, not to mention how much our taxes go up on Jan. 1st.

  • avatar

    The economy here in Boston seems to be pretty good. Yesterday it was tough to find a parking space at the malls according to local news. Lots of heavy traffic on the roads even late into the evening. I have a friend with a entertainment related business driven by local corporate spending and last month was the best he’s had in two years. Things seem to be going well here.

  • avatar
    Steven Lang

    The market has experienced a very strong uptick in the last ninety days.
    I am not saying that based on a stock price or a Federal statistic. I’m saying it based on three factors.
    1) The lack of vehicles at the auctions, and higher prices at a time of year where this isn’t usually the case.
    2) The price of steel scrap has absolutely gone through the roof. 30% increase over that period of time along with a variety of other industrious medals.
    3) Dealers are hiring and advertising far more than in the past. For the last three years it has been a collective gloom and doom situation. Now when I speak to other dealers, they are looking at ‘building their presence’ instead of streamlining their costs. A lack of competition has helped along with a lot of great products for all the manufacturers. But keep in mind that the axed brands represented less than 5% of automotive volume.
    It is too early to declare anything. We are still in the thick of the real estate crash and the dollar devaluation along with the PIIGS (Italy and Ireland are both in deep…) makes the current situation far more tenuous than most folks realize.

  • avatar

    Extension of unemployment has been denied, and housing has not hit bottom yet. The other shoe, i’m afraid, is about to drop. Traditional safe havens, like municipal bonds, are tenuous at best. I consider myself an optimist, but I am worried that this is a dead cat bounce.

  • avatar

    Whenever I hear about a Dealer telling someone he’s “running out of cars!”, it’s usually a good time to pop on over to Edmunds and check out the old supply/demand calculator – otherwise known as the list of incentives.

    That Hot CTS you want – an additional $5.0 or $2.0 is currently on the hood, depending on if you want a ’10 or ’11.
    That Bob Lutz special CTS wagon (now you know why we don’t get what Europe gets) – get them now because the $6.0 or $3.0 on the hood for the ’10 or ’11 won’t last forever.  Unless forever ends on Jan 3rd

    Or even that smash hit SRX w/ the turbo has $3 grand available.

    This is just another example of lazy newspapers and eager dealers looking for that sucker born a couple of minutes ago

  • avatar

    then why announce 0% plus $1500 with 120 days til first payment, and waiving upfronts on leases? more of the same old stuff, dealers just got their Holiday Red Toe Tags.

  • avatar

    There’s a big demand for Cadillacs?  Could have fooled me.  The county where I live has one Cadillac dealer to service a population of nearly 1 million people.
    As for the economy, yup, we are in a depression.  I’m not worried, we’ll beat this depression the same way we beat the last one, by getting into a war.  I’m actually looking forward to it….especially since I’m over draft age now.

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