by: Craig Howie | AOL Autos
Vehicles at the Port of Los Angeles
A strange and impressive sight currently greets drivers zooming over the Vincent Thomas span bridge across the sprawling California ports of Los Angeles and Long Beach: Thousands of imported cars -- about 245 acres to be precise -- parked in a huge lot amid the port's heavy industrial machinery that are testament to a glut in car inventories as consumers cut back spending in a slowing economy. But what do all those cars parked in America's busiest port complex mean for both carmakers and the consumer? Should a prospective car buyer expect major deals to come their way soon? And what should they know about a new car that has sat on a lot for too long? We take a look.
Both domestic and international carmakers have seen a precipitous drop in sales in the last couple months and a concurrent rise in their inventories, or stock of unsold cars. And as dealer lots fill up across the country, increasingly carmakers are finding their supplies are backing up while waiting export to the U.S. and at the entry point to the country. Both Mercedes and Toyota, the two biggest importers through the L.A. area, have requested more acreage for their parked cars and trucks, says Art Wong at the port of Long Beach.
He says that Mercedes and Toyota currently lease temporary space to store their cars before they are shipped to dealers across the nation: Toyota has 160 acres and has requested another 50 acres, while Mercedes leases 20 acres and has requested 15 more. Wong adds: "Typically the cars here are gone in a week and another shipment comes in, but in the last couple months maybe only a trickle are leaving. Basically when the financial crisis hit in September, within a month or so the cars started to back up." Wong says that while imports into the U.S. as a whole have dropped significantly since September, in many cases registering month-on-month declines of more than 20 percent, the drop in demand for big-ticket items such as cars has been even more noticeable.
Sales data shown is of top 20 selling cars and trucks as compiled by Autodata Corporation.
Kristopher Hanson, ports reporter for the Long Beach Press Telegram newspaper, tells AOL Autos that the L.A. county ports complex "usually will accept about 20 car carriers [ships] every month." In November, 21 such ships unloaded their cargo at the ports complex, but that number dropped to 15 in December, then fell to eight in January, and most recently fell to just 2 in February, Hanson says, quoting figures from the Marine Exchange of Southern California. He says L.A.-area ports usually have capacity to store about 2,000 cars but says car companies also are leasing storage space at small local airports and many other sites. He also says there is a backlog of cars awaiting export to the U.S. Thousands, he says, are parked on container ships still at sea.
Many carmakers therefore are cutting production, slashing prices and adding more incentives in a bid to reduce their inventory. Toyota has told its suppliers it will scale back global production by 12 percent in the next year to its lowest level in seven years, and has pledged to eliminate its inventory glut by June this year. Ford, meanwhile, says it has reduced U.S. production by as much as 38 percent in the second quarter of 2009.
Zoe Zeigler at Toyota cites figures that show the Japanese company's car inventory has grown to a 91.6 day supply of vehicles in February 2009 from 49.1 in February 2008, but points out that like-for-like comparisons can be difficult when such a steep drop in vehicle sales occurs. She adds: "With the market contracting substantially over the past year, [Toyota has] taken appropriate steps to adjust production and right-size our inventory to meet current market demand. We're starting to see the results of these efforts, and, while still higher than optimal levels, we've managed to reduce our dealer stock by more than 45,000 units (or roughly 15 percent) over the last 90 days." Mercedes, Honda and Ford did not offer comment.
GM does not release public figures on days' supply of its cars, but says that it has cut production of its vehicles in the last year and has managed to "significantly lower" its inventory. At the end of February, John MacDonald at GM says the company's inventory in February "was down 160,000 vehicles compared with a year ago, and down 20,000 vehicles on January." He says that GM "dramatically cut" production for the first quarter of 2009, aiming to produce 380,000 vehicles, or down 50 percent on a year ago. McDonald says GM's second-quarter production forecast is down 34% on a year ago, with 550,000 vehicles planned for production. Ford and Honda did not offer comment.
Toyotas at the Port of Los Angeles
Overall in February, U.S. car sales dipped 37 percent to their lowest levels in 27 years. GM reported its February auto sales dropped by 53 percent, while its fleet sales slid by more than 70 percent. Ford's light-vehicles sales slowed by 48 percent, while SUV sales were down 71 percent. Toyota, meanwhile, reported a 37 percent drop in February sales. And overall car-sales forecasts remain murky and could even get worse. J.D. Power & Associates this week said "a high degree of uncertainty and risk remains for the second half of 2009."
Meanwhile, average incentives climbed almost 16 percent year-on-year in February to reach nearly 20 percent of the sticker price of a new car. Chrysler spent a record $5,566 on average to sell each of its cars in February, according to Edmunds.com, an increase of 30 percent from January and an almost 60 percent jump from a year earlier. The average discount for all automakers was $2,914, a rise of about 15 percent (GM offered average incentives of $3,584 in February; Ford $3,430; Nissan $2,509; Toyota $1,744; Honda $1,249). Which all adds up to a good deal for customers looking to buy a new car. Long Beach Chrysler Jeep, for example, is offering thousands off the sticker price of its range of Chrysler 300s, Jeep Cherokees and Patriots and offering extended warranties and 0 percent financing as an added incentive on many of its models, a common situation at dealers across Southern California and nationwide.
But what should a prospective buyer know about a car that has been sitting unused on a lot for a sustained period? Is there a danger of fuel degradation, or a weakening, say, of drive belts if a car has been parked too long without being driven? And how can a consumer tell if a car is a long-time lot dweller?
Ken Lavacot, of 2carpros.com, says cars that sit on a lot for too long can develop a variety of problems a consumer should look out for. He recommends checking the battery for leakage, and says that hoses and other componentry including belts and intake books that are vulnerable to "natural decomposure" should also be checked. A full fuel system flush should also be undertaken to clean out "bad fuel that can gum up and clog the injectors," and Lavacot also recommends a full replacement of air, oil and cabin filters, and engine oil and coolant.
Michael Royce, a former car salesman who runs the site BeatTheCarSalesman.com, says a flat battery can indicate a car has been parked for a good while. "In my experience, the most common problem with new cars sitting on the lot a long time is that their batteries tend to die and have to be recharged. So if you choose a particular car to test drive and the salesman suddenly discovers that the engine won't start when he turns the key, you can probably assume that the vehicle been sitting on the dealership lot a long time."
Toyota contacted AOL Autos after this story ran on our home page and provided more context to their use of the Port of Los Angeles. We've printed the company's response below:
While it is true that Toyota did make use of additional storage space at the port in the latter part of 2008, we have not requested any additional storage acreage in recent months. In fact, by the end of this week, we will no longer need any of the off-site storage locations at the Port of Long Beach and have no plans to request supplemental storage space in the foreseeable future.
In the midst of this changing sales climate, our efforts to right-size production and inventory levels to meet current market demand have proved effective and, accordingly, we've been successful in reducing total inventory levels by 26.6 percent in the first quarter of 2009.
Zoe Zigler, Toyota Corporate Communications
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