Industry Report: What to do with All Those Unsold Cars

We’ve all driven by them before. Acres of new cars lined up in near perfect symmetry, row after row, oftentimes with white plastic on their hoods, trunk lids and rooftops, protecting their multi-hued panels from settling dirt and grime so that they’ll look perfect for their owners when it comes time for delivery. Only, these cars don’t seem to be going anywhere.

It’s a problem that automakers face now more than ever before, the last half of 2008 experiencing “the most savage contraction of demand since the modern industry was formed after the second world war,” according to a Bloomberg News report. And prior to recent layoffs, plant shutdowns and shorter term work stoppages that have started to ease the flow, the challenge of having to manage stockpiles of unsold new vehicles has grown at an almost unmanageable rate. Running out of space at the usual storage yards next to freight train stations and down at the docks, where cars are usually kept prior to being sent to dealers, automakers have turned to some unlikely alternatives.

While reports of cars being stored on farmers’ fields are nothing new, one case in Ontario has Chrysler opting for the Downsview Canadian Forces Base, now filled with dormant Dodge Challengers. The same scenario plays out with General Motors and Ford, and while the domestics have been harder hit with devastating sales decreases, the imports are hurting too. Nissan has taken to parking its excess capacity on its UK test track next to the Sunderland plant, while even mighty Toyota is now stockpiling cars, and the problem isn’t about to go away until some dramatic changes happen in the automotive industry.

While the solution is hardly simple, the problem is. In North America alone, according to the Bloomberg report, capacity exceeds demand by about 7 million vehicles. Similar scenarios are playing out in Europe and Japan, while even the BRIC (Brazil, Russia, India and China) nations are suffering declines in demand compared to the stratospheric growth they’ve achieved in recent years. December was brutal, with US car and light truck sales falling by 35.5-percent in the US according to Bloomberg, while France, for instance, only saw a drop of 16-percent. Then again, Spain’s automotive retail sector lost half of its buyers and Japan, once seemingly impervious to economic recession, has found 22.3-percent fewer new car customers.

Brand by brand the suffering appears selective, with Ford and GM about even with 20-percent declines over the last year, and Chrysler hardest hit with a drop of 30-percent in 2008, capped off by a 53-percent slide in December alone. Toyota was walloped with a 15-percent hit, while Honda, Hyundai and Nissan were down about 8-percent. Interesting is what happened to the imports in December, says Bloomberg, with Toyota and Honda showing slower sales than GM and Ford, probably because of deeper discounts from the domestics before Christmas.

And what about the prestige brands? BMW’s US sales nosedived by 40-percent last year, while Mercedes-Benz fared slightly better with a 32-percent decline. And how about Rolls-Royce, that sold 29 cars in December 2007 and zero in December 2008. The one bright light is Ferrari, which saw an overall global sales increase of 2-percent, with 26-percent going to the US, while Eastern Europe enjoyed the strongest growth, up 23-percent. Ferrari profits rose 27-percent in 2008.

Ferrari, at least, isn’t adding to the car glut currently filling up dock yards, empty building lots and piling up in front of assembly plants around the world, let alone on dealership lots. But its tiny volume of 6,587 cars will hardly make a difference in an industry plagued by overcapacity. The times are interesting at the very least, and the creativity automakers and dealers are showing in an effort to store cars, is at the very least darkly humorous.