We know all about the automotive depression, no one is buying cars. Got it. We don’t need to continue to beat a dead horse. What I never really put much thought to; however, is what happens to all the “new” cars that go unsold?
Really, put some thought into it…
When inventory does not move, the entire supply chain management system backs up. The dealerships do not need new cars due to the lack of sales, the automakers do not have anywhere to send the new cars, automotive suppliers have nowhere to send new supplies because automakers have suspended production… and the whole system comes to a trickle. But what happens to cars manufactured ahead of the slowdown? The cars that were intended to be delivered to dealerships but now have no buyers?
Jalopnik.com has the answer (in pictures, no less).
What will happen to these cars?
It’s painfully clear the need for cars won’t be picking up within the next three months, that means the glut of excess won’t be moving quickly. On average, it takes a U.S. manufactured vehicle roughly two weeks to go from the end of the assembly line to the dealer. Once on the lot inventory will sit for roughly 20 days. This means when a person gets a “new car” they really are getting a new car.
The longer a “new” car sits the likelihood increases that the car will not be sold because of the depreciation on the asset, the product can quickly be outdated due to the expected launch of expected new models, or the elements may damage the goods. So, if a car sits for three to six months, the value to the automakers and the dealerships drops dramatically.
What may have cost $20K to develop is now essentially worthless, and the company will need to account for their loss, leading the manufacturers to write down the cost of the cars.
What we may be witnessing is the next major wave of right downs – the next multi billion dollar losses for the Big Three – but by that time it may be simply an exercise in accounting as I would expect one or two of the Big Three to be in bankruptcy by that point…
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