The Mystery Of The Unsold Cars

Ah, look at all the lonely automobiles...

Ah, look at all the lonely automobiles…

One of the great frustrations about writing on the internet is the constant reminder that words can never compete with images for immediate impact. The human symbol-based psyche craves simplicity in a frighteningly complex world, and images provide their impact immediately, without need for further consideration. The old chestnut that “a lie is halfway ’round the world before the truth gets its pants on” is especially true in the modern world, where ever more is shared in images that can only ever show so much.

When Zerohedge posted photos portraying huge parking lots where, allegedly, “the world’s cars go to die” it was inevitable that the photos would have a huge impact. After all, 1) ZH is very well read and 2)monstrous overflow lots stuffed with unsold vehicles were to the 2008 US auto meltdown what suburbs full of foreclosure signs were to the mortgage crisis. In my naivete, however, I believed the shocking (if not entirely accurate) imagery of the post would inspire a closer look at the current auto inventory situation around the world. Having warned of inventory buildup in the US in a recent Bloomberg View post, I thought I could busy my weekend with other issues.

Yeah, right.

As the images went viral, including some depicting lots full of vehicles that haven’t been made for years, it fell on Jalopnik Editor-in-Chief Matt Hardigree to respond to inaccuracies in the post. Matt’s a smart guy, and he handily shows that the Zerohedge “guest post” was inaccurate in areas, and not to be trusted as journalism. But then he sort of leaves it at that, as if the post had appeared in a vacuum. It hasn’t.

In Europe, where many of the more recent pictures in Zerohedge’s inflamatory guest post were from, the manufacturer and dealers’ incentive to “keep the numbers up” are laid bare. Because European countries count registrations rather than dealer deliveries, their monthly sales data should be more accurate… but as Bertel explains, this has given rise to “The Big Registration Lie.” Dealer and manufacturers in Europe are taking the financial hit to “buy” cars from themselves, to the tune of nearly 50% of all reported “sales” in a given month for some brands. Around 30% of new car sales in the EU’s “strong” markets, like Germany and the UK, are not indicative of actual consumer demand. What’s not clear is whether dealers are able to sell those vehicles at lower prices (and if so, how much lower), or if they are being diverted to some form of storage as the Zerohedge post suggests.

Though Bertel points to a wide variety of factors in the “self-registration” phenomenon, his primary explanation matches that of the esteemed professor Ferdinand Dudenhofer some five years ago: “OEMs or dealers buy their own cars to look better on paper.” In the US, both a tradition of following the factory-push model (rather than Europe’s emphasis on build-to-order) and cheaper land and credit to store vehicles exacerbate that tendency. In the five years since GM and Chrysler went through bailout and bankruptcy, auto inventories have steadily climbed back to  almost exactly where they were in May of 2008. According to Automotive News’s Data Center, the industry average inventory was 69 days on May 1, compared to 70 days on May 1, 2008. After several years of chastened inventory control after the 2008 bloodbath, the industry is back to its lot-stuffing ways. If you really want a dramatic picture of the unsold car problem in the US, you only need a little bit of Photoshop.

Gulp.

Gulp.

These numbers are, in many cases, estimates that Automotive News makes absent clear or consistent market data from automakers. GM, for example, stopped providing monthly production data a year ago in a move that baffled Automotive News and prevented online busybodies like myself from tracking the supply and demand of the industry’s most notorious inventory hog. GM’s Orwellian explanation was that production data was “an incomplete data set,” as if no data were somehow better. Without hard numbers coming out of factories, it’s even harder to judge if the dealers who buy the “sales” trumpeted monthly are accurately judging actual consumer demand. Because US vehicle registrations are in the hands of state DMVs, nobody knows the extent of any Europe-style self-registration scandals propping up the US car sales recovery. As far as we know, only ever-extending loan terms and ever-lower credit standards are the only the only indication that the car sales recovery is in any way rigged or unsustainable.

Clearly, the Zerohedge guest post was not quality journalism or analysis. Fine. One of that site’s key strengths is precisely that it throws shit at the wall to see what sticks… that’s why I read it, anyway. In this case, their methods might not have been good but their paranoia was justified. The reality is that EU auto sales are demonstrably rigged in ways that leaves cars moldering on lots, and there’s no reason to believe that’s not happening in the US as well… on top of the officially-acknowledged 2008-level inventory bloat. Rather than getting hung up on Zerohedge’s journalistic failings, established auto media outlets like Jalopnik should devote more resources towards actually understanding the phenomenon of growing unsold auto inventory. Clearly it’s an issue (not just in the US and EU) and clearly we are not operating with an excess of information about automakers’ ability to match supply with demand (especially here in the US).

Zerohedge may not have found a smoking gun in the mystery of  the unsold cars, but at least they’re looking.