US Auto Industry In Crisis Amid "Inventory Bubble"

Tyler Durden's picture

Despite record U.S. auto sales last year, the number of vehicles on car-dealer lots remains near record highs, and, as J.D.Power analyst Thomas King warned this week, 2016 ended with an inventory "bubble" that will require less production or more incentives to clear.

With near record high inventories of 3.9 million vehicles...


U.S. auto inventory finished 2016 at about 66 days supply, up from 60 days a year earlier. Inventory would last 2.23 months at the November sales pace, according to the latest available data from the Census Bureau. The stock-to-sales ratio in 2016 is extremely elevated compared to historical norms...

More problematically, King warns, about one-third of inventory were older model-year vehicles, rather than more typical level of less than a quarter.

Of course this massive stockpile hits just as President Trump pressures the auto-industry to onshore more jobs and more production...

But as the industry automates, factories don’t create jobs like they used to, said Marina Whitman, a professor of business administration and public policy at the University of Michigan.


“The American auto industry last year produced more cars than it ever had before, but they did it with somewhere between one-third and one-half the number of workers that they had decades ago,” said Whitman, who was an adviser to President Richard Nixon and GM’s chief economist from 1978 to 1992.


“The last thing the auto industry needs is more capacity.” she said.

So - produce more to employ more people and please President Trump (only to dramatically worsen the inevitable collapse), or cut workforces and productin further (as we have already seen) and face the wrath of Trump's tweets?

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Cognitive Dissonance's picture


<Don't worry. That will buff right out.>

espirit's picture

GM unresolved recalls, Takata Air Bags.

Fix, or go belly up catfish.

Burnbright's picture

Hmm everything is peaking all at once...

That's not bad right?

Sudden Debt's picture

most things peaked already a year ago.

Now it's important to keep an eye on the luxury sector in general because those will be the first to show the signs of a decline.

But all and all, I give it another 6 to 9 months because we might go into crisis mode and I wouldn't look to America now. I'd look to Europe a bit more.

Pure Evil's picture

So, do you guys plan on burning rapefugees for heat this winter?

Sudden Debt's picture

no, not yet. But most of us will lower the temperature of our outdoor swimmingpools by 1 or 2 degrees... I even know people who lowered the heating for their pools over 5 degrees during the crisis of 2007 and only increased it when they where planning on using it!!! let's hope it never comes to that again...


Giant Meteor's picture

Apparently un-real estate in the Hamptons has been taking a beating as well. Sad, I know. With the auto inventory glut, and other developments, seems like most sectors are fairly much, tapioca street  .....

Raffie's picture

So in theory to muuch of anything lowers the price. So vehicles of all types should be cheaper not priced as if they are hard to come by.

AliSONY's picture
AliSONY (not verified) Jan 27, 2017 7:42 PM

Where are the markets going?



There are some good analysts out there.


And  proves market calls by showing past time stamped charts.

directaction's picture

I can't wait for Russia to export Ladas to the US market. 
They are solid, nice-looking, reliable these days.  

buzzsaw99's picture

that inventory/sales number could go up if the denominator gets smaller. /lulz

cherry picker's picture

The problem is simple and many don't get it.  One basic tenet of economics is supply and demand.

On this planet of 7 billion souls, give or take, we have the capacity to produce more than we would ever need with far less people than would have been necessary a few short decades ago.  Every country is looking to export it seems in order to employ its people, but the demand by those who can afford everything is not there.

Not only that, the quality and maintenance requirements for capital goods such as cars have reduced dramatically over the last number of decades.

We as a species need to look past manufacturing or agriculture as a means of existence or 'earning' sufficient wages to feed and shelter ourselves.

I do think the powers that be are more than aware of this, that is why war is being pushed on us as they can't seem to come up with a satisfactory solution to mankind's problems other than destruction.

ThreeRs's picture

The powers that used to be love war. Everything about it is just fine with them. Especially all those serfs dying.


Lot of money in War and Restoration. Ask the Military Industrial Complex or the Bank for International Settlements, why don't ya.


The powers that be have ceased to be. They don't know it yet, but they're circling the drain.


Re your premise: "We as a species need to look past manufacturing or agriculture as a means of existence or 'earning' sufficient wages to feed and shelter ourselves."


What is your solution? I'm not sure I know what you mean here.


I prefer to remember that it's good to know how to work a simple machine such as a pulley, or grow a bean or even harvest an animal for meat. You know, just in case. So, if you look past manufacturing and agriculture as a species, who does this for you?

cherry picker's picture

I do a lot of my own stuff.  I have tools and know how to use them.  Also live in a rural area.

But I lived in places where there were too many people, plenty of poverty and not enough to do.  Ergo problems develop.

My personal opinion, it is good for people to use their hands and brains to make things or provide services.  When that is not available to them, they get lethargic as the old axiom, couch potato, suggests.

Are people happy with their existance on this planet?  For many I think not so much.

ThreeRs's picture

Trump is building our military.


It's not all airplanes and fancy weapons.


Trump wants an army for the US, built by the US.


Of course he wants more capacity out of Ford, GM, Chrysler, et al. He needs more capacity and bigger factories using American steel. The parts for every jeep and car and tank, etc, made here in America.


Sure hate to lose a war because we couldn't get a part from China or anywhere outside this country.


Independence in not only energy, but everything we need, especially to defend ourselves. That's what I think Trump's after.



tuetenueggel's picture

Oh yeah, as the tanks deployed to Poland:

Empty tanks, broken Batteries.

A lot of them still standing as they got shipped out in German harbour Bremerhaven.

US-Army, a bunch of morons.

stant's picture

Gringo U make shitty caas.

eeaton's picture

Belmont Racetrack just outside NYC has 100 acres of parking lots full of new cars as does numerous lots along the 50 miles of Long Island railroad tracks and other open industrial lots full of new cars. 

Ban KKiller's picture

One dealer used a lot he had store his brand new cars, weird.

Mr. Pain's picture

Car rental companies like enterprise will bite the bullet trying to sell their crappy used beaters. 

Ajax_USB_Port_Repair_Service_'s picture

Negative interest car loans!!!

pliny the longer's picture

ok i'll post it:  we see this same story every 8 wks or so on here.  if there's such an inventory bubble, prices would drop. its that simple.  

itstippy's picture

I wish Chevrolet or Ford would make a basic conventional cab truck, V8, 4X4, full size bed, standard transmission, durable cloth interior, 40/60 bench seat, crank windows, air conditioned, no electronics except cruise control, true 1/2 ton payload, sprayed bedliner, with a MSRP of $25K.  Also, no damned "4X4" sticker on the rear panels, and use marine grade wiring connectors so the damned wiring harness doesn't start doing weird shit after five years.

I know they could make money on such a truck at that price point if only more people were looking for real trucks.  Today's trucks are some kind of weird cross between truck, luxury sedan, and soccer Mom minivan.  Honest to God they've got lighted makeup mirrors on the passenger side sun visor.  They cost $50K+!


wampum's picture

They do make that truck, but you will have to order it becuase nobody wants that combo except you.

daveO's picture

So, it'll cost even more than 50K. When I look at the idiots that drive some of them, I can understand how the car companies get away with it. Just give any yahoo a payment book.

Last of the Middle Class's picture

Same thing with an updated '93 or so full size (2 fucking doors) blazer or bronco built to last. I've often wondered how much weight the extra 2 doors and length of a yukon added while the owner drives to micky d's with no one in the car but himself to get a mcgriddle and coffee. The gasoline alone wasted moving all that extra steel (albeit a fair amount of plastic now) is really criminal. And the irony is they build another POS electric mobile short circuit in an attempt to make themselves look green for Al Gore and co. We lost a major chance to change the auto market for the better when GM was bailed out and we wil pay for it every day until that option again presents itself and we choose sanity. (Not making the same mistake over and over again expecting a different result)

StreetObserver's picture

2 Reasons not to buy a car in January:

1. Huge number of used cars coming on the market as lease returns go on sale. This will hammer down used car prices and that will affect new car prices as well.

2. OBOYCOTT! Buying a car now helps Obma's legacy as economic activity is closely watched and charted. Buying a car in February or beyond gives credence to Trump's economic reform that will be needed to offset the ObamaDepression in which we have been for years.

Sit on those wallets guys, only four more days.

Silver Savior's picture

Obama is not the problem. Trump is. Obama was a great president and I think term limits are bad. Atleast now Obama can somewhat rest. It must be hard.

Equalizer's picture

Guess what America, noone wants your shitty cars, not even Americans, maybe you can ship some over to Cuba, they need more cars post 1950's LOL.

JailBanksters's picture

You really need a cartoon to illustrate the US Car Indistry.

You Make a Car, Store cars in a Giant Car Park, Claim a Manufacturing Loss for Tax Purpises, Take the oldest cars in the Car Park to the Crusher, Take material back to Manufactoring Plant to make another Car.


If they make less cars, they don't need as many people working 24 hrs a day.





Silver Savior's picture

Just give all unsold inventory away free to the poor. A bailout to the poor. For just being poor.

tuetenueggel's picture

This is impossible.

It would make the rich a tiny bit poorer.

wally_12's picture

The local news in the Detroit area is reporting that the increase in used vehicle inventory is composed of small cars that nobody wants. The demand is SUVs or trucks that sell for $40,000.00 plus.

tuetenueggel's picture

as long as there is some credit left on your new plastic no 7.

RabbitOne's picture

One of the things the 10,000 baby boomers who retire each day will learn is “ will not drive much...”. So why buy a flashy new car every few years. I still have my old 2000 Honda CRV running like a top with 190K miles now on (most miles were prior to 2005)  it since I retired in 2005. Other retirees don’t give a dam what you drive... 

To Hell In A Handbasket's picture

Bringing the token jobs back and let US manufacturers produce cars in the USSA tariff free and lets see how long they survive without tax-payer subsides? Silly me, even when they make their cars in Mexico with cheaper wages, USSA automakers are still loss making and that includes the value added scam of auto-car loans/over price cars bubble. Trump is bringing back a token amount of jobs, that in the grand scheme of things vs your horrendous unemployment rate, the difference is negligible, or by analogy, "It's the equivalent of pissing into the Atlantic ocean and trying to measure the rise in sea level "  FOOLS!

TheMachinist's picture

I will never buy a new car, though my wife just bought a brand new hybrid RAV4 with a large down payment.  

I have three good used vehicles for less money.  1996 Toyota Tacoma SR5 with 350,000 miles on the original engine and drivetrain that I've driven for 10 years bought for $6k, 2008 RAV4 Limited with 190,000 miles on the original engine and drivetrain bought for $6K, and 2001 BMW Z3M with 57,000 miles like new bought for $15k.  

It makes sense because I HAVE THE EXPERIENCE AND A GARAGE FULL OF TOOLS TO FIX MY OWN SHIT NO MATTER WHAT BREAKS!!!  The only thing I pay others to do is change the oil (cheaper than my time), change tires and do alignment (special equipment + my time), and windshield replacement (cheaper than my time).

Lazy-assed people in this country need to buy tools and learn to use them instead of buying new cars with payments and interest that they can ill-afford.

tuetenueggel's picture

Why did you marry such a crazy wife?

A hybrid RAV4 ? More crazy is impossible. Kick her ass.

Silver Savior's picture

I bought a 1995 Accord v-tech in 2005 for $4000. I drive it everyday and has been my only car since. I just do small maintenance to it and it just needed a starter and radiator once that I replaced myself with no skills looking at YouTube videos! I will never buy a new car and give them pigs more money.

TalkToLind's picture

I do the same thing, used cars only.  I look for premium, well cared for cars and I ignore any which haven't depreciated at least 50% from their new car price. I hire out for maintenance when needed and am still in a favorable situation (no car payments) compared to those who only buy new.   

Graph's picture

"Four square" game by car salesman will be part of colorful history.

First crack into their carnage was introduction of internet bidding. Oversuply in society with other priorities will cap it.

Never met anybody who bought a car who had not had that shaken look of someone who knows that he had been hosed.

New car smell acted as a pain killer.

roadhazard's picture

Tons of leased cars are coming the market. 2017 is the year to buy a good used car/truck as prices will be way down.

Cockoo's picture

More corporate greed from GM they just fucked 600 Canadian auto workers good job Trudeau Jr. Looks like Canada need to drain the swamp hang that traitor.  Bet nIeto is beyond grateful.