U.S. automakers are cutting prices as they try to reduce dealer inventories:
Now, as the WSJ reports, Detroit’s big 3 are trying to sweeten discounts to clear a massive inventory of unsold vehicles from dealer lots (desparate not to start a profit-killing price war). “We believe we can sell our way out,” said GM, but as Morgan Stanley warns, “the best of the U.S. auto replacement cycle is over.” Good luck…
Good luck, indeed. When was the last time you passed an empty, or almost empty, new car lot? Who is buying all of those cars that are being manufactured? For example, in 2012 Kia built 355,000 cars at its plant in West Point, Georgia. The plan was to build 360,000 cars and SUVs at the same plant in 2013. But what Kia and other auto manufacturers don’t tell you is that they count a car as sold when it leaves the factory and is sent to a dealer, not when a car is actually sold to a consumer.
As a result of this fraudulent accounting trick, the supply of cars on dealers’ lots is increasing. Hence the need to offer additional incentives to entice consumers to buy a new car. This is what happens when supply exceeds demand: the price of the good falls.
My advice: wait a couple of years to buy that new car. Things are so dire for the auto industry that the manufacturers should be giving cars away by then.
What a country!