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The automotive laws of supply and demand: Cars not in demand usually become cheaper

Old 01-12-2008, 05:03 PM
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Default The automotive laws of supply and demand: Cars not in demand usually become cheaper

Can you imagine when the price of gasoline goes sky high and getting a Challenger way below MSRP?


The automotive laws of supply and demand: Cars not in demand usually become cheaper

Steven Cole Smith

AUTOMOTIVE

January 12, 2008

Wonder how manufacturers decide what models get big rebates and discounted financing deals, and what models don't?

It's pretty obvious -- vehicles that are selling well don't get large factory discounts, and vehicles that aren't are in need of help, in the form of incentives. But car companies have a more specific measure that they typically use called "days supply."

In most cases, a 30-day supply is considered ideal. That means that if the manufacturer stopped building that vehicle today, there are enough in the pipeline, and in retail inventories, to last for 30 days before they run out, given the current rate of sales.

Automotive News recently printed a "days supply" list for vehicles, and it says that as of December 1, Honda had exactly a 30-day supply of CR-Vs -- for this model, that represents 20,000 vehicles in the inventory. Thirty days is considered optimal because it gives the manufacturer a little cushion in case something goes wrong. Remember, for example, that ship -- the Cougar Ace -- with 4,700 new Mazdas aboard that almost sank in 2006 en route from Japan to North America? All those vehicles had to be destroyed. Having a certain number of Mazdas in the inventory prevented a shortage, and gave the company time to ship over some more.

The smallest inventory of cars of any manufacturer is 18 days for the Mini Cooper, but that has been the case since the brand returned to North America: BMW likes to limit production to keep demand, and prices, high. BMW, Lexus, Porsche and Infiniti, according to Automotive News data, are keeping their inventories the smallest. Consequently, you seldom see big incentives on those brands.

The flip side is when a manufacturer keeps cranking out cars and trucks, and they keep piling up on dealer lots. Volkswagen had the largest stockpile of any manufacturer, with an average of a 106-day supply of vehicles. Suzuki, with a 105-day supply, was right behind VW.

Looking over some of the individual models, though, it's clear that quite a few are due for a nice discount. Mercury, for instance, had a 166-day supply of Sables, meaning if they stopped building them now, at the present rate of sales it would take more than five months to move them all. In some cases, though, that could be intentional -- if, say, a manufacturer is making a major plant changeover from one model to another, they may have to shut down production for a while as they replace the plant tooling and perfect the new model run. That could be one reason why there was a 120-day supply of the Dodge Ram, as the 2009 Ram will be substantially different from the 2008.

Having a big supply of vehicles does not at all mean that the vehicle isn't a good one. As of December 1, there was a 160-day supply of one of my favorites, the Pontiac Solstice. This suggests to me that the dealer's days of selling Solstices at or above sticker price is over.

Sometimes, though, it's just unfortunate planning. Isuzu has 135 days' worth of pickup trucks, not surprising since Isuzu dealers in the U.S. sold an average of two vehicles in November of 2007. Ferrari dealers, at least, sold an average of four. Leading that category, not surprisingly, is Toyota/Scion -- dealers sold an average of 141 vehicles last November. No other brand came close.


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Old 01-12-2008, 08:39 PM
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Default RE: The automotive laws of supply and demand: Cars not in demand usually become cheaper

That would be much the same as in the '70s when people were dumping muscle cars in the wake of the Arab oil embargo in '73 and again in '79 when the U.S. quit buying Iranian oil. What I figure is going to happen soon is you'll be able to pick up SUVs and large pickups for a relative song and very possibly gas-guzzling cars, such as the SRT-8 Challenger. Hmmmmmm....maybe I should hold off on a V-6 or an R/T '09 model. After paying outrageous dealer markups for one of the "limited production" '08 SRT models (like the rest of the world even cares if your vehicle has a serial number on the dashboard), the owners of them aren't going to be able to afford gasoline and will have to let them go for at least enough money to buy bicycles.
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Old 01-12-2008, 09:22 PM
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Default RE: The automotive laws of supply and demand: Cars not in demand usually become cheaper

RoswellGrey, now that is funny.

Who says history doesn't repeat itself.
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Old 01-16-2008, 09:24 PM
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Default RE: The automotive laws of supply and demand: Cars not in demand usually become cheaper

Now becareful how you are interpreting all of this. They also listed the Sable as being stuck on the lot and those get 28 mpg (31mpg under the old standards) which is actually very fuel efficient, yet you don't hear about the Mustangs being stuck on the show room floor. Also take a look at the sales of the LX cars to the new mid-sized cars. Combined between the Charger and 300, they sold around 240K, when the more efficient Sebring and Avenger sold closer to 150K total than 200K. Some models that aren't as efficient people will buy because they are coming from SUVs that get much worse fuel mileage. My advice is don't get your hopes up. I just hope that certain things that I dread that are taking place this year will not result in a disaster that will turn us back to the 70s in full swing.
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