The retail automotive industry has a dirty secret. Everyone knows about it but no-one talks about it: the over-supply of cars that means we are turning new cars into used cars before they even leave our lots.

The creation of ‘cyber cars’ via sales that are reported despite never actually taking place is hurting our industry. While they might help Dealers meet sales targets and receive factory bonuses, in the long run they reduce prices and create major headaches.

There’s a belief that some Dealers over-order and inflate sales figures in order to receive bonuses, resulting in holding yards full of ‘cyber cars’ or ‘called cars’. Dealers then market the cars as ‘undriven demonstrators’, which makes them cheaper for consumers but also means the warranty period begins before the car is even registered.

Between 10 and 20 per cent of reported sales are actually ‘cyber cars’. That means up to 200,000 new cars or more per year in Australia reported as sold are actually not.
One brand was said to have 22,000 cars in holding yards around the country, with another 8,000 unsold cars in Dealer stock. Considering that brand usually sells fewer than 6,000 cars per month, that represents a huge percentage (about 40 per cent) of its annual sales.

The flow-on effect is that Dealers reduce the price of overstocked brands, forcing competitors to lower their prices as well – great for consumers; not so great for Dealers.

There is no external regulation or verification of car sales figures, so we must take each brand at its word. The FCAI denies the practice is widespread and says sales figures are accurate.
Over-capacity is a problem that is not unique to Australia. More than half of respondents to a 2013 KPMG global survey of the automotive industry said they felt over-supply of vehicles was a high risk, especially in strong manufacturing countries such as Germany, Japan, the US, Spain, South Korea and France.

In the US, BMW spent the first half of 2016 trying to liquidate its overstock of vehicles such as the 3 series.

AutoNation, the largest US new vehicle retailer, warned in early January that there was a bulging inventory of unsold cars, especially luxury models. In April, Group 1 said it planned to cut orders, particularly for luxury cars, and claimed BMW, Mercedes and Audi each had more than 90 days of supply at its stores.

Suggested solutions include consolidation, joint ventures and alliances, as favoured by auto executives in Japan and Italy. German makers would prefer government assistance in the form of subsidies and production quotas, but few see that as a long-term answer. Japanese, French and UK manufacturers say investing in the brand will improve market share and sales. Only the French favour reducing production. Contract manufacturing, which has proved successful in the US, does not appear to be considered a solution for most.

The world auto industry reported new car sales of almost 90 million in 2015. Millions of those are still sitting in dealerships or holding yards.

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