Car “bubble” creates backlog of unsold vehicles

Sales unlikely to rebound

Steve Hawley, Apr 13, 09.

The collapse of the car “bubble” last year has created a huge backlog of unsold vehicles, according to the Washington Post, and sales are unlikely to recover to their earlier levels.

The article states:

The backlog exists because many of the factors that contributed to the collapse of the housing bubble—cheap credit, easy financing, excessive production, consumers buying more than they could afford—undermined another large and vital American industry.

“There was a car bubble,” Steven Rattner, who President Obama recruited to head a Treasury Department group charged with finding solutions to the mountain of problems facing the American auto industry, said in an interview last month. “We had this artificially high sales rate.”

During the boom years of the early and mid-2000s, automakers were selling more than 16 million cars a year in the United States. They are on pace to sell fewer than 10 million this year.

Individuals, it notes, bought cars they could not afford and bought new vehicles frequently, while municipalities and rental companies replaced their fleets too often. But as the economy declined, more people turned to car maintenance instead of new purchases. The sharp decrease in demand caused 900 car dealerships to close last year, and another 1,200 are expected to fold in 2009.

The article notes:

One of the key questions the auto task force must answer is figuring out a sustainable number of annual auto sales. Only then can it determine the best way forward for U.S. automakers. “You had a huge number of cars being sold,” Rattner said, “so I don’t think it is prudent to assume the sale levels are going to back to those levels.”