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Thread: Too many cars - not enough market

  1. #1
    Vulture of The Western World Eric's Avatar
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    Too many cars - not enough market

    For openers, there are far too many cars.

    As we watch the slow-motion train wreck that is the dying global automotive business, it's easy to blame the economic situation for the debacle. And it's certainly a very big contributing factor. Or more precisely, an accelerating factor. It has absolutely made matters worse - and faster.

    However, so far, there has been little discussion of the overcapacity issue that underlies it all - and which is far more serious and which has been quietly bleeding the industry white for years now.

    What's "overcapacity"?

    Simply put, too many vehicles chasing not enough market.

    The industry (that's all the carmakers put together) tries to sell on the order of 11-12 million new cars every year because that's how many cars they build. The problem is it's hard to sell that many cars, even in the best of times - and it's even harder to sell them at any kind of decent profit.

    For years now, the margins on cars have been extremely slim - and getting slimmer. Often as little as a few hundred bucks, net, per car.

    Think how lousy a business that is. A car is a hugely complex thing comprised of thousands of individual components that must be manufactured at various locations and then assembled into a single unit. Literally thousands of people and several weeks (if not months) of assembly process are involved in the creation of just one finished car.

    Also, modern cars, once built, have an extremely long shelf life compared with the cars of the past. With decent care, they can last 15-plus years and more than 200,000 miles. But the auto industry continues to churn out new cars on the 1960s-era assumption that the entire fleet gets recycled every 5-7 years or so.

    Result? The inventory (new and used) stacks up.

    And yet, each year, it seems another automaker jumps into the already overcrowded waters with yet another model to compete against the existing multitude - making it ever harder to earn a buck off the already-there stuff.

    There was an exception to this - SUVs - during the period that ran roughly from the early 1990s through last year. Profit margins on SUVs were huge - as much as $10,000 or more per vehicle on a high-end model such as a Lincoln Navigator or Cadillac Escalade. Why? Because at first, there were only a few SUVs on the market - far fewer (both model-wise and total numbers-wise) than the emerging market for them. So the automakers could charge more for them.

    SUVs were also easier and cheaper to build than passenger cars - which helped. But the real reason they were such money-makers - at first - was because supply lagged behind demand.

    Now, of course, the market for SUVs is glutted, too.

    Which gets us back to the overcapacity issue.

    The U.S. population has roughly doubled since the mid-1960s, going from around 160 million to just over 300 million today. That's everyone - not just the people who are in the market for a new car - which of course is a much smaller number/percent of the total.

    But the number of active "players" in the US car market - brands of cars and types of cars - has expanded by triple or more during that same period.

    In 1970, GM controlled about 50 percent of the U.S. car market; Ford and Chrysler each had about 20-something percent. AMC was a bit player. VW, Toyota, Honda and Nissan (then Datsun) hardly registered. And they produced small cars only - not the full range of models from econo-boxes to SUVs and luxury cars they offer today.

    Mercedes, BMWs, Audis and Volvos were curiosities one rarely saw outside of places like New York City and Los Angeles.

    And of course, there was no Acura, Lexus, Infiniti; the luxury car market in the United States was the virtually exclusive province of Cadillac and Lincoln.

    Within each model segment - mid-size family sedans, for example - there were typically three or four major contenders circa 1970. Today, there are more than a dozen contenders in this same segment - and it's similar in virtually every other segment. Meanwhile, the buyer pool has not increased in parallel with the increase in the number and types of vehicles being offered.

    And of course, each vehicle sold these days tends to remain in service two or three times as long as the typical car of the '60s or '70s.

    This combo - a surfeit of vehicles and a much slower "turnover" rate across the board, has created a much weaker, less solvent industry - precisely because the industry has given us cars that are so much better than they used to be in so many different varieties.

    Ironic, isn't it?

    Competition and consumer choice are good things, of course - but like many things, not to excess.

    Some don't want to face up to this, however - most notaby orthodox "free market" theologians. It is anathema to them to even discuss the possibility that maybe there can be such a thing as too much choice. And even, perhaps, too much competition.

    Why not allow the very same market forces that have given us so much choice to thin the herd? Billions of taxpayer dollars have already been thrown like so much confetti at the floundering automakers in order to assure that not a single car company goes under, economic viability be damned.

    But this will only preserve a bad situation for a little while longer; the jobs supposedly saved will still be lost in the long run. Because the market's just not big enough to absorb 12 million new cars being added to the mix every year.

    Eventually, reality will have its way - but from the looks of it, not before we bankrupt ourselves in a last-ditch effort to deny the obvious.

    And inevitable.
    Last edited by Eric; 02-08-2009 at 07:45 AM.

  2. #2
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    Overcapacity is everywhere

    Quote Originally Posted by Eric View Post
    For openers, there are far too many cars.

    What's "overcapacity"?

    Simply put, too many vehicles chasing not enough market.

    Eventually, reality will have its way - but probably not before we bankrupt ourselves just a little bit more in a last-ditch effort to deny the obvious.

    And inevitable.
    As a 60 yr/old guy I can tell you overcapacity is everywhere. Everyone has a car (a newer car), likewise HD Tv's, CD's, Computers, Cell Phones, tools, clothes, ATV's, boats, snowmobiles, you name it, we all got it.

    This wasn't always the case. I can remember when Detriot charged extra for a heater! A large record collection was 100 disc's. It was something to have a transistor radio. At one time you could 'lust' for a top-of-the-line stereo system. Now they are selling $50,000 turntables. One could lust after a Vette - now they sell Lambo's for $1,000,000. It's just nuts. Nothing real to aspire for - just insanely priced, or expensive crap.

    This is the reason I don't see a way out of our current economic recession - everybody has so much 'stuff' - who needs to buy any more? I predict that the 'worker/consumer' model is dying. Because you either really don't need it, or it's so overpriced you don't want it.

    Just go to the nearest mall, and look at the crap in those stores, and then ask yourself: "Do I want to spend my hard earned money / borrow on credit for this stuff?" I bet the answer will be NO!

  3. #3
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by dBrong View Post
    As a 60 yr/old guy I can tell you overcapacity is everywhere. Everyone has a car (a newer car), likewise HD Tv's, CD's, Computers, Cell Phones, tools, clothes, ATV's, boats, snowmobiles, you name it, we all got it.

    This wasn't always the case. I can remember when Detriot charged extra for a heater! A large record collection was 100 disc's. It was something to have a transistor radio. At one time you could 'lust' for a top-of-the-line stereo system. Now they are selling $50,000 turntables. One could lust after a Vette - now they sell Lambo's for $1,000,000. It's just nuts. Nothing real to aspire for - just insanely priced, or expensive crap.

    This is the reason I don't see a way out of our current economic recession - everybody has so much 'stuff' - who needs to buy any more? I predict that the 'worker/consumer' model is dying. Because you either really don't need it, or it's so overpriced you don't want it.

    Just go to the nearest mall, and look at the crap in those stores, and then ask yourself: "Do I want to spend my hard earned money / borrow on credit for this stuff?" I bet the answer will be NO!
    Could not have said it better!

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    Another "problem" is that the cars now last too long. At one time three or four years and 60k miles and a car was ready for the crusher. Today, given no more than fluid and filter changes, fifteen years and 150k miles is not remarkable.

  5. #5
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by jdm124 View Post
    Another "problem" is that the cars now last too long. At one time three or four years and 60k miles and a car was ready for the crusher. Today, given no more than fluid and filter changes, fifteen years and 150k miles is not remarkable.
    This is very true; thought about mentioning it and may just have to add it in!

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    Quote Originally Posted by Eric View Post
    This is very true; thought about mentioning it and may just have to add it in!
    I agree. In my case, I did not need to get another vehicle, but I did so out of almost boredom driving the same car for 8+ years.

    My Saturn has 167,000 miles. Although I have had to do some repairs over the years, the car has been pretty damned reliable and is probably at its 2/3 life.

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    Let's not forget the huge credit card debt - that is nothing more than an unsecured loan.

    Also the enormous student loan debt - that is also unsecured. It's a shame that higher education has now become a part of the government. If it weren't for student loans, people couldn't get useless degrees (like medical billing, massage, vetrinary assistant).

    Federal pensions are not on the budget either.

    I would venture a guess the most people work either directly for the government, or indirectly (like building highways), or some sort of social work (that is supported by the government), or receive an entitlement. I bet less than 20% of the working age adults work in an industry that is not supported by the government.

    I think the do-do is gonna hit the fan - sooner than later.
    Last edited by dBrong; 02-10-2009 at 04:01 PM.

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    Senior Member Kwozzie1's Avatar
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    Sometimes I think MY best days were when I first arrived in Australia. Car and caravan.

    I could not fit "stuff" in the caravan so I didn't buy "stuff"

    Then I bought a house!!!

    It's time for the simple life again
    Rex
    On the Sunshine Coast, in the Sunshine State Queensland (QLD), Australia

  9. #9
    Senior Member grouch's Avatar
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    Back in 1971 when I got my first car, used cars held little residual value. A new car could be bought for $2000 for the Pinto and Vega. A three year old car, regardless of brand, often went for a few hundred to maybe $1000. Then the dealers started running the prices up to fatten their profit margin. Then John Q. Public finds that his used car is worth more. In the last couple of decades, used cars, at least from a used car dealer, often run almost as much as a new one. Toyota in their Lexus brand prefers to lease their cars so they control the used car market pricing. Why are used Lexus cars worth so much? If you want one but can't afford a new one, you will pay the price Toyota wants.

    I drive older cars and often sell them for what I paid for them. I consider the money I spend making repairs to be the rent I'm paying. I usually don't make money but don't lose much either. I'm currently driving a 19 year old car and it drives great, gets really good fuel mileage, is comfortable and quite nimble. In the recent ice and snow storms, it handled great. Why pay $20-40K plus to replace an $800 car?
    Honk if you love Jesus.

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  10. #10
    Vulture of The Western World Eric's Avatar
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    "I drive older cars and often sell them for what I paid for them. I consider the money I spend making repairs to be the rent I'm paying. I usually don't make money but don't lose much either. I'm currently driving a 19 year old car and it drives great, gets really good fuel mileage, is comfortable and quite nimble. In the recent ice and snow storms, it handled great. Why pay $20-40K plus to replace an $800 car?"

    This is savvy. But many people have been bamboozled into believing they are incomplete if they're not driving something new (or new-looking) and eagerly buy into that $500 per month payment - which most of the time they cannot really afford. Most people cannot afford that kind of coin. Oh yes, they can get a loan. But that is not what I mean.

    In my opinion, you'd need to be bringing in at least a six-figure salary (and have no mortgage or other debt) for a $25,000 car purchase to make any kind of financial sense.

    I don't mean to be harsh, but people are sometimes really stupid with money.

    They wonder why one day they wake up, realize they're pushing 50 and have maybe $2,500 in the bank - and still owe on their house and probably have credit card debt on top of that. Forget retirement. Ever.

    For my generation (and everyone who comes after) there is the additional fact that Social Security will not be there for you to live on, either. If you're counting on your $1,500 monthly SS check to live on when you're geezing 20 or 30 years from now, better think twice - and rethink spending that $500 per month on a new car. Save it.

    You are going to need it!
    Last edited by Eric; 02-14-2009 at 08:21 AM.

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