
SUVs parked on cargo ships reveal scope of U.S. auto market glut - pseudolus
https://www.bloomberg.com/news/articles/2020-05-01/suvs-get-parked-in-the-ocean-and-reveal-scope-of-u-s-car-glut
======
sxcurry
My wife and I just bought a new car, and the Sales Manager had the gall to
tell us that there was a $4,000 Surcharge because "the factory is closed and
there is a shortage of new cars". This while standing in a sea of new cars and
no shoppers.

We did not pay the surcharge.

~~~
chrischen
What economic value, or what problem, is a car salesman solving? Price
discrimination as a service? And if they were really necessary why does Tesla
not need them?

~~~
LordFast
None, but I believe they hold political power both in terms of dealership
associations and also in terms of bargaining rights from manufacturers.

It's an outdated system that should have been dead a decade ago, but not yet.

~~~
pdonis
_> It's an outdated system that should have been dead a decade ago_

Longer than that, I would say. I have not bought a single car where the dealer
added any value to the process at all. And I've been buying cars for three
decades now.

~~~
gwicks56
I am usually more up to speed on the features and options of the vehicle than
the person selling it to me. I think they exist to rip people like my Mum off,
who think because the nice man advises she really does need the AWD version
for inner city life, she should pay the extra $3k, as it's "safer".

~~~
newyankee
When i bought my last SUV i actually changed my preference from one popular
Japanese brand to another because although the salesman at large Japanese
dealer (Toyota) was cool, i had to give a small feedback session with his boss
about what influenced my choice. The funny part of the story is that the
original salesman was a UK origin American and the boss was Asian origin
American (point being they were not from a small city or anything). I was so
pissed off by the Boss' line of questioning that i actually changed my
decision.

I realized in my US stay of many years that a lot of economy is rent-seeking
like everywhere. Dealers primarily exist as ICE cars needed maintenance and
legacy reasons. However it is a pity that they cannot be disrupted. I have not
had experience with platforms like Carvana but i avoid used cars from people
because i have had bad experiences before.

~~~
pm321
"However it is a pity that they cannot be disrupted. I have not had experience
with platforms like Carvana.."

Where I see the street is littered with unused bikes for sharing (sometimes a
trip hazard if you are not looking where you go while on the iPhone SE talkin)
and unused cars parked for sharing. They multiply. The disruptors must be
using a utility function with payoff after the sovereign wealth fund managers
backing the thing cashout at the top, retire and die. And then there is no
return on investment after WeWork's hard partying and snort.

------
bluedino
Not really related to the article, but this is from Cadillac's website:

 _To address concerns related to dealership sales department closures and
social distancing, Cadillac is offering virtual tours of its products via
Cadillac Live and promoting its “Shop. Click. Drive.” online shopping,
purchase and delivery program._

Wasn't this the very thing the automakers were against when Tesla came up with
it?

~~~
cosmie
Cadillac (and other auto manufacturers) structure their program to include
dealerships, rather than to cut them out. The sale gets booked against and
delivered by a local dealership, rather than Cadillac the manufacturer.

Tesla does not have an independent franchise/dealership model, and all of
their local presence is corporate owned. This is what all the automakers have
been against, as there are a rats nest of local/state laws that require legacy
automakers to not compete with/cut out their dealerships with direct-to-
consumer sales, but Tesla has avoided that impediment by resisting having to
adopt the sales framework the legacy manufacturers can't legally get out of.

That said, manufacturers would love to be able to adopt Tesla's model; dealers
are the ones that hate it as it's an existential threat. Manufacturers are
only against Tesla's model to the extent that they're not legally allowed to
adopt it, so consider it an unfair advantage.

~~~
nradov
I doubt that most mass-market auto manufacturers want to move away from the
franchise dealer model. It's tremendously capital intensive. Tesla can make it
work since their cost of capital is so low. Where would Ford or GM get the
billions in funding to run thousands of dealerships across the country?

~~~
mikepurvis
The other key insight of the Tesla model is recognizing that three three
traditional functions of a dealership don't actually benefit much from being
colocated— which is why Tesla puts the showrooms in shopping malls, does the
sales online with flatbed delivery, and locates service centers on marginal
lands in industrial parks where it's easy to have a big parking lot and hold
lots of parts inventory.

The legacy manufacturers could absolutely copy this approach and would love to
do so.

~~~
fock
I'm not sure, where you live, but here (Europe) car dealers are generally in
the kind of urban sprawl, where industry and shopping malls are located as
well. And the typical lifestyle brands have a lot of show-rooms in inner
cities as well – for all the others I doubt it's necessary... People will buy
used anyway...

~~~
toasterlovin
> I'm not sure, where you live

This discussion is about American auto dealerships.

~~~
geomark
Seems useful to compare the dealership experience to how it works in other
countries. In the US, the dealership experience seems to be pretty bad for
many people, at least it was for me and everyone I know through several car
purchases. It hasn't been the same experience for the several cars I have
purchased after moving overseas. Not sure I could pin down the reasons why. It
might be the same reasons that the service you get from banks here is so much
better.

------
Animats
The lockdown is delaying electrics by a year or two. In 2018, Fiat Chrysler
said the all-electric Jeep would be in 2020. In 2020, they said 2022. Now
there's no date.

There's "mild hybrid" junk coming out, but that's a transition technology to
skip over. Historically, things like that don't last long. Ships with both
sails and steam engines. Metal-plated wooden hulled warships. The B-36
Peacemaker, with six props and two jet engines. (The all-jet bomber, the B-47,
came out the next year.) Diesel locomotives with mechanical transmissions,
like a truck. Acoustic coupler modems. Compact fluorescent bulbs.

~~~
phire
I don't think "Compact fluorescents" belongs in that list.

They first hit the market in the '80s, and I remember my parents installing
them in the mid '90s.

As a product, they got a good 20-30 years of life before LED bulbs got good
enough to replace them.

~~~
rsync
"I don't think "Compact fluorescents" belongs in that list."

20 to 30 years of terrible light aesthetics and here's hoping you never
dropped or broke one since, oops, there's toxic waste (mercury) in your house.

CF bulbs are just the worst technological diversion I have seen taken in my
lifetime and I feel bad for _everyone_ that had to interact with them.

------
mips_avatar
The market still hasn't budged in used car pricing though. JD power's report
from last week only showed a 2% decline in prices. Wonder if/when prices will
actually be affected by this.

~~~
Zimahl
Why would used cars drop in price? Since no one is buying new cars there's no
supply of used cars. Lower supply means increased prices but demand is
probably down as well so almost no change.

~~~
Guest42
I think that lending will be tightening up as well.

~~~
vkou
If you're buying a used car from a private party, you're not doing it on
financing.

If you're buying a used car from a dealer, with financing, you must be truly
desperate. A lot of people are desperate, though...

~~~
loeg
When I bought my current used car, in cash, the dealer offered it on financing
for 0% or 0.9% or something very low — no impact on the selling price. It
wouldn't have been a terrible decision to take the super low interest loan and
put the purchase money into my investment portfolio instead (just another form
of leverage). I paid cash anyway, because I went in intending to, but
characterizing all financing as extremely desperate is misguided.

------
pkulak
Not to be flippant, but the example used is Nissan, which has been circling
the drain in the NA market for a couple years now. This wouldn't have
surprised me if it happened 4 months ago.

Now, are ships full of Toyotas and VWs also unable to unload?

~~~
jeffbee
Nissan USA sales down by 1/3rd _before_ pandemic [1], car sales down 37% in Q1
2020, partially within pandemic [2]. Just brutal.

1: [https://usa.nissannews.com/en-
US/releases/release-103b1d052f...](https://usa.nissannews.com/en-
US/releases/release-103b1d052fdcd89776fbcfb58d00a83f-nissan-group-reports-
december-2019-and-2019-calendar-year-us-sales)

2: [https://usa.nissannews.com/en-
US/releases/release-11f3e4512e...](https://usa.nissannews.com/en-
US/releases/release-11f3e4512ee877fdb9261f0e8200024f-nissan-group-reports-
first-quarter-2020-us-sales)

~~~
elsonrodriguez
This is a direct result of Nissan selling boring cars with transmissions made
of glass and jagged rocks for years without any sign of changing course.

Their niche was performance(even their budget cars had very good power
compared to competitors), they should have left the boring appliances to
Toyota and Honda.

~~~
ngngngng
Are they really that bad? I've been looking at getting a pathfinder for a
while now. They're so cheap with just 10k miles on them.

~~~
PhantomGremlin
Early Nissan CVT had problems. Don't know about more recent. That's probably
what the GP post was referring to?

[https://en.wikipedia.org/wiki/Nissan_Pathfinder#2014_model_y...](https://en.wikipedia.org/wiki/Nissan_Pathfinder#2014_model_year_update)

Looks like CVT introdueced in 2014 for the Pathfinder. So if you're buying
newer than that, you're getting one.

I'd advise you to do research on Nissan reliability before buying. Maybe
something as simple as joining cr.org

------
SilasX
And let me guess: it’s somehow not going to translate into lower new car
prices because automakers are entitled to previous levels and will get
government aid to prop up demand (cf “cash for clunkers”)?

~~~
shiftpgdn
A lot of people bemoan cash for clunkers but it does a lot of the general
level of safety and pollution on the road. A voluntary culling of select
cars/trucks is generally good for the world.

~~~
tricky
I feel like cash for clunkers destroyed a lot of value, prices went up, and
consumers got little out of it.

~~~
icelancer
Most economists agree with you.

[https://en.wikipedia.org/wiki/Car_Allowance_Rebate_System#Ec...](https://en.wikipedia.org/wiki/Car_Allowance_Rebate_System#Economic_effects)

------
gnicholas
How will this play out when auto dealerships seek to unload their inventory?
Will it be via lower prices, manufacturer incentives, zero percent financing
for longer periods than normal?

I'm sure dealers will want manufacturers to share the burden with rebates.
Financing incentives seem risky given the chance that jobs are not especially
stable these days.

Does anyone remember what happened during the 08 recession? I imagine this is
a more abrupt dropoff, and presumably will be a more abrupt sales pickup as
well. How would that lead to a different result here?

~~~
brogrammernot
It's already happening. Auction houses are down significantly, and you're
seeing like 70-80% of MMR value at auctions for vehicles
([https://publish.manheim.com/en/services/valuation](https://publish.manheim.com/en/services/valuation)).

It depends in which manner they need to liquidate, if they can hold the
inventory it often makes sense to do so instead of losing the 20-30% of market
value liquidating it (you just do the calc of depreciation per day versus
selling right now).

You can't really liquidate new cars, because there's regulations around
selling new cars that prevents folks like Vroom, Carvana, Shift from taking on
that inventory but those are the only folks who could really afford to do so
with their respective funding from external sources.

Financing incentives are risky, but you account for that with increased income
verification and other items - the deferral of payments for 90-180 days is
getting more and more common.

This situation seems different from the 08 recession, as lots of folks
_should_ get their job back once things are opened & we get back to a new
normal so if you treat the risk as such you're hoping that 90-180 days is
enough of a time period to have people be able to afford the loan they've
gotten.

The real looming issue is you have ~4M or so vehicles coming off-lease later
this year, so you will have an incredible influx of used vehicles to an
already saturated market leading to great deals for consumers but not ideal
times for most folks.

The harder part of selling online for dealers is that their money maker is in
the hard-selling of ancillaries (Warranties, the "paint protector" and so
forth) plus the F&I office (financing and insurance) but if you can't hard
sell customers anymore then the majority of your profit center is gone so it's
having a material impact on the dealers.

Happy to expand more or answer further questions as I work in the auto space.

~~~
nerfhammer
what's the best way to buy a car right now?

~~~
danielvf
If you don't know what kind of car you want, head down to CarMax and test
drive about five to six vehicles in the category you are looking for. Find the
one you like, then check later that that kind of vehicle and year doesn't have
some kind of terrible maintenance problem (most don't, which is why this can
be done later).

Right now, year or two old used cars are selling for more than they are worth
- so if you are looking in that price range, a new car may be a better deal.

If looking for used, I've bought all the ones I didn't regret off private
party sales from Facebook or Craigslist. Just lurk daily for about a month and
get a feel for what the ones that sell are priced at, and know that the ones
that don't sell are probably priced a little high. When you spot a good
vehicle at a good price, move! Try to get in to see within 24 hours. If it's
at a good price, it will sell quickly. If you want to buy it, get it taken to
a dealership for an pre-purchase inspection (Usually $100-$200). If you had a
mechanic you trust, he might do it for free. If it's good enough buy it.

If looking for new, then the first step is to find the online forum where the
power owners of that make and model hang out, and find the forum thread or
spreadsheet where they post how much they paid. This is incredibly powerful,
and is the key to your success. It will often surprise you how low dealers can
eventually go. Pick a price low from the list, but not the absolute bottom as
your plan.

Next step is to contact by email many dealers around, tell the vehicle you are
asking for, say you are shopping around, and request an out the door price. If
you shop say eight dealers, you will be amazed at how much these prices may
vary (like 10% of the value of the vehicle). If you see what you are looking
for, go for it, and walk out if they change the price later.

~~~
diziet
This is nice, but don't you value your time? Lurking craigslist, visiting to
see a lot of cars, etc has a cost.

Paying 2-3% more and saving a lot of hassle seems much more reasonable.

~~~
GordonS
I don't know about the US, but we also have online brokers in the UK, for new
cars.

They take a small commission (usually from the dealer), then contact a bunch
of nationwide dealers on your behalf. The prices they get are better than or
very close to the best you could personally haggle, and it takes like 2
minutes to make the request.

------
ericcholis
Many of the major brands are offering insane deals. Kia, for example is
offering 120 days until first payment plus 0% financing for 72 months.

Meanwhile Subaru, per usual, is offering on the low-end compared to what
others are doing. 0% for 63 months. They never budge on financing or offers.

~~~
londons_explore
I hate 0 percent loans.

I wish a service existed that I would pay a lump sum of upfront cash to, and
they'd sort out all the loan paperwork, etc.

Obviously if it's a 60 month 0% loan, I want to pay the sticker price minus
the return on a 2.5 year fed bond...

~~~
jedberg
Why? If you have the principle just invest it yourself and then pay off the
loan with an auto payment each month from that same principle.

~~~
amiga_500
I wonder if anything will shake the idea that the stock market is a one way
trip? We are back to 2016 on the NYSE right now.

~~~
jameslevy
You can take both long and short positions. Although it seems that most people
(almost everyone) shouldn't try to get too fancy with this.

~~~
amiga_500
Short with the principal on a car?

Here is what needs to happen: the vast majority of people need a steady job
that sees them afford a car. They need to not be "financially literate"
because the vast majority of options open to them are not financial footguns,
and we need a world where playing financial games doesn't make or break a
person.

What was it Henry Ford did?

a. gave all his workers a Robinhood account so they could play derivatives and
try to afford one of his cars

b. paid his workers enough to buy a car

~~~
vasco
This is a very US centric view of the world - whose gotten itself into a
corner with urban planning centered around cars. People don't need cars, they
need mobility and the ability to get around their surroundings efficiently. If
we're making up solutions to the world, by all means raise salaries if you
can, but I wouldn't center our goals around car ownership. Walk around, ride a
bycicle, use public transportation.

~~~
amiga_500
Yes they might not need a car if there is public transport.

That wasn't my point. My point was ordinary people shouldn't be looking to
hedge the principal of something costing $15k with long/short positions in the
stock market.

This is the financialisation of yet another area of western life and it's not
smart.

------
purplezooey
I don't see any massive discounts happening. If someone started offering some
serious deals on cars, let's say 25% off the ordinary price and no bullshit
like the other guy ran into, I'm sure they could sell some serious volume.
Instead it's just the dumb sit and wait like it has been in past recessions.

~~~
ineedasername
25% is generally more than both the dealership & manufacturer's gross profit
put together, so 25% would be a loss. Dealerships themselves generally markup
2-5%.

~~~
bittercynic
It might be a smaller loss than they'd take by waiting for things to
deteriorate further. I interpret their 'wait and see' strategy as optimism
that things will be better soon.

~~~
ineedasername
True. If they're stuck servicing loans or paying storage fees (especially
those associated with having them on a ship for an extra week) at some point
it makes sense to sell at a loss rather than incur more fees and uncertainty.

------
jedberg
There was recently a guy who did a helicopter tour on YouTube [0] where he
flies over Dodger Stadium and points out that although there are no baseball
games, the parking lot is completely full with new cars.

It's crazy to see. They are putting them anywhere.

[0]
[https://www.youtube.com/watch?v=AzD5u_fLo70&t=1407](https://www.youtube.com/watch?v=AzD5u_fLo70&t=1407)

------
whalesalad
Living here in LA/OC, virtually every big mall parking lot in town is packed
to the gills with new auto inventory parked head to tail. The SNA airport
parking lot is also being used for the same thing.

Turnover on vehicles is bananas.

------
edude03
> The port is fortunate in having another source of revenue, though. It’s a
> big importer of tropical fruit, like pineapples, avocados and especially
> bananas.

I hope they've also considered the looming panama disease crisis as well
[https://theconversation.com/the-quest-to-save-the-banana-
fro...](https://theconversation.com/the-quest-to-save-the-banana-from-
extinction-112256)

~~~
wideasleep1
I'm low carb, so gimme the avacados! No bananas, thanks. Edit: who downvotes
avacados?

~~~
wideasleep1
DANG, please delete my account.

------
cronix
Couple that with the dozen+ oil tankers just sitting there full of oil and
nowhere to put it, with more on the way.
[https://www.businessinsider.com/13-photos-reveal-the-epic-
oi...](https://www.businessinsider.com/13-photos-reveal-the-epic-oil-glut-in-
new-proportions-2020-4)

~~~
jonah
Here's a live AIS map of all the tankers off the port of Long Beach CA.

[https://www.marinetraffic.com/en/ais/embed/zoom:14/centery:3...](https://www.marinetraffic.com/en/ais/embed/zoom:14/centery:33.6841/centerx:-118.1368/maptype:3/shownames:false/mmsi:0/shipid:0/fleet:/fleet_id:/vtypes:/showmenu:/remember:false)

------
commandlinefan
Something tells me we haven't seen the worst of the economic slump yet. By
far.

~~~
seph-reed
And we haven't seen the best yet either!

~~~
neural_thing
We well might have already seen the best economic environment of our lifetime.

------
mh8h
With the level of just-in-time inventory systems used in the auto industries,
I'm surprised the manufacturers could actually build this many cars. I'd
imagine the whole line would be down if they are waiting for the bluetooth
module that usually comes from China.

~~~
duxup
I was wondering the same.

I was still seeing a lot of logistics activity... until just recently.

------
codeisawesome
Something that always bothered me: how do so many cars get sold? Aren’t these
very durable objects that last years? I’m just having trouble wrapping my mind
around the scale of demand for new cars.

~~~
all_blue_chucks
Average vehicle lifespan is 11 years per [https://www.consumerreports.org/car-
repair-maintenance/make-...](https://www.consumerreports.org/car-repair-
maintenance/make-your-car-last-200-000-miles/)

~~~
jiggawatts
What the!?

I've owned three cars, all three of which I inherited used and were already ~8
years old when I got them. My current car is nearly 17 years old and drives
great!

What in god's name are people doing to their cars that they have to be
scrapped so early?

My partner was nearly crying with sadness recently when she had to scrap her
22 year old car!

------
jacob019
So where can I get a crazy good deal on a new car. I wasn't in the market, but
if the price is right...

~~~
pjettter
cash on sundays worked well for me in the past...

~~~
dhosek
Not in Illinois where car dealerships are legally prohibited from opening on
Sundays.

------
RcouF1uZ4gsC
Once the car dealerships reopen, I think there will be the mother of all
sales. If you were thinking about getting a new car, this might be the best
time to do it.

~~~
bluedino
At least here, they are still 'open'. You just have to do your test drive and
such by appointment, and they bring the cars to you.

------
garmaine
Question for the people out there smarter than me: I was looking to get a new
car before the crisis, and since I’m lucky to have stable income I think I
still will. But given that manufacturers are going to want to clear inventory,
how long should I wait? What sign will tell me it’s time to buy?

~~~
lotsofpulp
Make a list of email addresses of sellers you would purchase from. Email them
with a price under what you’re willing to pay. See who responds with best
offer. Repeat every month until prices stop going down. And depending on what
brings you joy in life, don’t waste too much time saving a couple thousand
dollars.

------
thorwasdfasdf
the automotive demand was already slowing down considerably before this all
hit. but now it's a double wammy. I don't really need another car. I'd love to
buy house, if there was one available.

It's funny how we don't really see the supply of houses piling up the way we
do with cars. Granted, the housing market moves slower. But, I bet, even in 6
months, in coastal areas and the bay area, the month supply of housing will
still be very low.

------
jeromegv
In the parking lot of the closed mall where I live (Toronto), they have parked
hundreds and hundreds of cars. I didn't quite understand why but it seems that
it might be related to delivery of cars that might have arrived in the city
and they had nowhere to put them since the dealerships are shutdown?

------
ngcc_hk
The title should still be in the sea offshore as it is in general car is
parked on cargo ship all the time when it is delivered even if there is no
virus. In fact, I suspect the time stay in the ship could be > 1 week.

------
yalogin
We are seeing this unravel in front of our eyes. Wonder how much time it will
take for this to reflect on the consumer side, it at all.

Similarly I am not seeing any impact on real estate. I am guessing that will
take a few more months.

------
xwdv
Being a city dweller, I don’t own a vehicle, however I wonder if this glut
means there might be some good deals on vehicles later this year? I’d love to
get my hands on a Toyota 4Runner for some off-road adventures.

------
Pxtl
Bet there's still a month's wait for a BEV or PHEV.

------
snarfy
So do I buy now, or wait a few more months?

~~~
duxup
It really depends on finding out if you can get a deal for what you want now
or not.

------
nabla9
10 year TIPS (Treasury Inflation-Protected Securities) yield is -0.5% for this
reason.

------
piinbinary
"Parked in the sea" is a rather dramatic way of saying that incoming container
ships couldn't unload.

~~~
XzAeRosho
For some reason the headline got me thinking that they were throwing cars into
the sea.

~~~
dx87
Same. The headline made it sound like dealerships had a bunch of cars already
ordered, and were caught dumping them in the ocean because they weren't
selling enough inventory to make room for the newer cars.

~~~
lotsofpulp
That is the intended purpose of the headline in order to get you to click on
it.

~~~
Scoundreller
Use this link instead:

[http://archive.is/e4D3G](http://archive.is/e4D3G)

------
ohazi
This is the real reason for Elon Musk's latest round of idiotic tweets, in
case anyone was still confused.

Tesla is an expensive company to run, their finances are often at least a
little bit precarious, and he has on the order of tens of billions of dollars
riding on there not being a recession right now.

There's no hidden gem of contrarian insight, he's just being selfish.

~~~
whyenot
He seems to be having a meltdown on Twitter today. It's more than just
financial. I think there is something really wrong with him.

~~~
millzlane
This is probably bugging him.
[https://www.theverge.com/2020/5/1/21244556/elon-musk-lie-
epa...](https://www.theverge.com/2020/5/1/21244556/elon-musk-lie-epa-tesla-
model-s-range-miles-mistake-door)

