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Horrors of Unsold Cars - Will it be a Cause for the Next Global Recession?

Horrors of Unsold Cars - Will it be a Cause for the Next Global Recession?

Snapshot: We have a serious issue to disscuss, an issue which we all need to find an answer to!!!

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This article can be summed up in following words - Recession, Dominos Effect, and Necessary Evil!! However, before we go further, let us be clear about the fact that the gravity of this situation is a way lot more serious than what we can write or talk about it. What we know as the financial crisis of year 2008, it was an event so catastrophic in proportions that it spread across the world leaving engulfing every country every continent into its deep dark hole. It is no wonder then, the automobile industry across the globe couldn't save itself from clutches of this economic meltdown that brought the world to a standstill. 

The dire situation that the automobile industry found itself in, was mainly due to the fact that the traditional consumer of cars USA and UK were among the worst hit regions by the crisis. As generations of citizens of these countries for the first time saw serious lack of funds, the markets plummeted. Gone were the days when the families of these developed markets changed their cars every year, now they tried to get as much mileage out of their existing cars as they possibly could. As the bread and butter markets pulled their hands from buying new vehicles, a staggeringly large stocks of unsold cars began to pile up all over the world. 

Baltimore, Maryland, USA

Take the case of port of Baltimore, Maryland, where 57,000 vehicles, as shown in the picture below are awaiting buyers, all of them are brand new straight from the factory models. If you move onto the town of Sheerness, United Kingdom, you can see thousands and thousands of unsold cars in the parking lot, the scene is as haunting as the one in Baltimore. 

Swindon, UK

Further, the town of Swindon (Swindon), again in the United Kingdom, the picture is of a large car park where thousands of stranded cars, all new and all without buyers. The situation has gone to such limits that the car manufacturers are having to buy more land to accommodate such pile ups of unsold cars. 

Common thinking would suggest that it would be sensible on manufacturers behalf to announce discounts on such cars, however, automakers are not willing to make any concessions as they want to bring back the money they have spent on the creation of these machines. Also, things get interesting on this front when we count the fact that announcing discounts on such unsold cars would no doubt help manufacturers to empty these huge parking lots of brand new vehicles, but on the other hand these discounts will mean that the other expensive cars will be left without a buyer. Another solution on the face value of the situation will be cutting off or stopping production all together to liquidate such enormous inventories, but, if we look closely doing this will be a suicidal step for a industry still trying to recuperate from the events of 2008. 

There is no way that any of the Automobile companies can possibly stop the conveyor, because it will yield to plant stoppages and then closure of plants. The close plants would no longer need any workforce and this would result in laying off of thousands of workers. Such an event like this will trigger a domino effect - like bankrupting steel mills, a major material provider to the automobile industry. This will lead to shutting down of a bunch of other companies that manufacture components and assemblies for cars. Thus, it is a necessary evil, to keep manufacturing, an undeniably risky step, to try and make sure that another recession is mitigated.

St. Petersburg, Russia

In the picture below, shows a parking far away from the factory "Nissan and all these cars are the ones no one bought, by now some probably have already been recycled for parts. With tens of thousands of vehicles produced at the plant every week, and most of them not getting sold, this situation is getting worse every passing moment. Reading all this, one would imagine that this situation essentially has its origins in the USA and the UK, however the picture below is from Russia, on a runway next to St. Petersburg, thousands of new cars are parked. They were brought from Europe and now there are no customers for these cars. Due to this, the airport also cannot be used for its original purpose. 

It is indeed sad to admit it, but the real solution to this problem does not exist. The cars will continue to come off the production line and instead of going to the showrooms for customers they will go straight to the parking lots, where they will join already stored millions of other vehicles. It is both staggering and haunting at the same time, but on our planet the number of cars has how well exceeded the human population and now amounts to almost 10 billion pieces. 

Worldwide accumulate reserves of unwanted cars are getting bigger and bigger. While the Economists argue that consumers do not have the money to buy new cars, but as already discussed, any decrease in production will create even bigger chaos. In these times, the Old machines now serve for a long time, and we just cannot give up the production of new ones meaning we are running out of storage space. there is nowhere for them to go!

What happens to these unattended machines? 

As time passes, finding customers for such cars becomes even tougher as the cars that suffer such long motionless parking for months would mean a setting in of long stay motionless detrimental to the machines. The cylinders begins to accumulate condensation, a process called cold metal corrosion. Tires starts to leak air and deform and the batteries decay. Moreover, to stay in the market Automakers are constantly developing new models with the most recent technologies, meaning that the unsold cars two years of age, no longer have a chance to find a buyer.

Closer home in India, there are about 3500 authorized dealers for cars in total, and here too one can look into the pile of cars in almost every dealers stockyards, with stocks good enough to last dealers for about 4-6 months. With new stocks added to dealers every month and margins decreasing to as low as 2-3% each unit sold, the dealers are feeling the heat on markets that are still to warm up to the post recession times. 

Is there a remedy? 

So how to stop this epidemic? Where is the way out? The only answer is to wait, and to wait and see if the market pick up again. Sadly, no one can predict when this will happen, and it might take ages before that occurs. And, as every moment passes, these piles ups of unsold cars with billions and billions of dollars stuck in them, are dangerously pulling the world towards another financial meltdown, and this time around it might just burn the world down.

What do you think in terms of a solution to this piling up of fresh cars? Your comments are welcome!

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