From a distance they look like ants, brightly colored and stretching for acres and acres. But on closer inspection it becomes very obvious exactly what they are. And at that point it’s a case of seeing is not believing.
They are brand-new vehicles – tens of thousands of cars, vans, and SUVs – all neatly lined in rows with only minimal space between them, filling the humongous lot where they are parked. They are smartly styled, powered by highly efficient engines, and made with the latest features. Amazingly, not even one of them has ever been driven on a highway and not one ever will be.
At one time these vehicles were shiny and eye-catching, exuding the alluring scent of new leather and worth tens of millions in total. Nevertheless, they were discarded by their manufacturer. And now they are not being maintained, are left to rust and to rot, and no longer have a “new”-look appeal.
None of those vehicles was ever sold, auctioned off, or given away. Many thousands more are added to this graveyard for cars every year. And most amazingly, there are thousands more auto graveyards around the world just like this one.
How are we to make sense of this? Auto makers are not fools. They know exactly what’s going on in their industry and know the costs of all of those unsold cars to the penny. So why aren’t they cutting back on the number of new cars they make every year? At the very least, shouldn’t they auction them at “fire sale” prices and generate at least some revenues?
Firing On All Cylinders
But the auto makers will not cut back on the cars they produce, nor will they ever auction off any. And that’s why new car graveyards keep popping up all over the world: at abandoned military bases, near ports and airports, and in lightly populated areas outside cities.
Rather than modifying their business models and cutting production, car manufacturers keep buying more land so they will have more space to park the unsold cars they will make in the future.
It should be clarified that sales of new cars have not come to a grinding halt. In fact, millions of new vehicles are sold every year and an estimated 79 million will be sold around the world this year.
Nevertheless, the number of unsold cars literally keeps piling up. Why don’t car companies sell those at sharply discounted prices? Because if they did, they would be unable to sell their more expensive new cars rolling off of assembly lines, and then those would pile up; in other words, they would derive no benefit from selling cars at sharp discounts.
What’s Going On?
Nor do automakers want to implement the most obvious solution: close some factories to bring supplies in line with demand, because that would mean having to lay off tens of thousands of their employees.
In addition, such factory closures would also be a disaster for steel, glass, rubber, and other industries. Tens of thousands more companies that make the components used by the automotive industry would also be affected, and so would the many thousands of people who work indirectly for the auto industry. Of course, steep layoffs at those firms would further depress car sales, making the problem of unsold cars feed on itself.
At the same time, the quality of cars has been improving for many years. It is no longer unusual to see cars with 75,000, 100,000, or even 125,000 miles in fine working condition. That means there is no urgency to purchase a new vehicle every two or three years, as there had been at times in the past; this is another reason why so many new autos never leave the dealer’s lot.
No Answer In Sight
Overproduction of autos peaked back in 2009, just as the worst of the Great Recession was taking hold. However, this problem continues to this day, and it is occurring around the world.
In the Port of Sheerness in Kent, England, tens of thousands of cars fill the huge lot there. In Russia, there are so many tens of thousands of new cars imported from Europe, all parked near a runway in St. Petersburg, that the airport can no longer be used for its intended purpose. Italy and Spain are experiencing the same challenge, and the number of unsold cars in some graveyards there stretch as far as the eye can see.
According to epicdash.com, “When a car is left standing idle for a lengthy period of time, all the oil sinks to the bottom of the sump, and then corrosion begins to set in on all the internal engine parts where the oil has drained away.” In other words, while these vehicles may have zero mileage recorded on their odometers, they have serious engine issues and at that point can no longer be sold.
We may be tempted to say overproduction is not our problem, let the auto makers worry about it. Unfortunately, the price of each new car sold includes the costs of discarding their unsold relatives in auto graveyards. Guess who is left holding the bag?
Gerald Harris is a financial and feature writer. Gerald can be reached at firstname.lastname@example.org