Monday, May 19, 2014

This Makes No Sense: Please, Tell Me What Insane Tax Incentives Are Causing This

Zerohedge has an article about the massive new car lots around the world where manufacturers are storing new cars that they can't sell.  They show part of a 57,000 car lot in Maryland and claim:
The car industry would never sell these cars at massive reductions in their prices to get rid of them, no they still want every buck.  If they were to price these cars for a couple of thousand they would sell them.  However, nobody would then buy any expensive cars and then they  would end up being unsold.  Its quite a pickle we have gotten ourselves into.
The whole article makes no sense, unless there is some sort of insane tax incentive that various governments are providing to keep the factories churning out far more cars than they manufacturers can sell.  I am reminded of the vast number of "see-through" high rises built in the U.S. in the early 1980s because tax incentives were so strong that it made sense to build commercial office buildings even if you never rented out the space.  Is that going on?

It is really hard to believe that a 15% reduction in price on new cars would not immediately sell much of this backlog.  Or an I missing something?  It is beginning to sound like the sort of Keynesian terror of underconsumption that drove a sci-fi story I read many years ago, where the top of the socioeconomic elite were allowed to live in small houses and consume very little, but the lower you were, the more you obliged to consume.

A reader tells me that the article is flat-out false.

UPDATE: Not really the same problem, but apparently many state and local governments do not understand the concept of making use of existing assets before buying new ones.  This report from November 25, 2013 Channel 10 in Columbus, Ohio, reports:
10 Investigates has learned some Department of Rehabilitation and Correction (DRC) cars have not been checked out for use in at least two years.
The DRC maintains a lot full of cars at its headquarters on 770 West Broad street in Columbus.
At the adjoining parking lot, 10 Investigates' reporter Paul Aker used video recordings to document numerous cars that did not move all summer.
The recordings began on August 20. By mid-November, many of those cars still had not moved....
10 Investigates analyzed fleet records and compared those to check out logs. The station's investigation revealed 20 cars that had not been checked out for use in at least two years. Others seemed to get very limited use. In one case, a car was checked out only two times in the two year period.
A similar, perhaps even more embarrassing situation was covered April 27, 2012 by ABC News:
Miami-Dade County is under fire for letting hundreds of new cars–Toyota Prius hybrids, pickup trucks, vans and police patrol vehicles–sit, unused, in a county garage.  For six years.
Back in 2006, the county added 908 new cars to its 7,300-car fleet. A year later, after the recession hit, they reduced their fleet by 947. Some of the remaining cars were sold, but the others were warehoused in the Earlington Heights Metrorail station parking garage, said County spokesperson Suzy Trutie.
By the spring of 2008, the number of idle vehicles–worth an estimated $4 million– had grown to 1,200, the Miami Herald reported.
According to Trutie, brand new car and trucks sitting idle year after year was no big deal.  “They were in storage in the garage,” she said. “We always have an inventory of cars in storage because we are constantly upgrading our fleet. This is what we always do. This is not new. It’s part of our every day operations.” 
 This makes sense for boxes of staples, or copy paper, or hammers -- items that don't cost much, and don't degrade if they are not regularly serviced.  But cars?

UPDATE 2: Here's an account that a reader provided that shows that this wasn't as silly as it sounds.  Why, you could get the impression that mainstream journalists are sometimes as careful and accurate about stuff like this as they are about gun control!


Kyle Haight said...

You're right, it makes no sense.

Sebastian said...

The Zerohedge article is not true:

Unknown said...

The report about Miami Dade is also not true:

The "new broom" administration was hamstrung by ironclad purchase orders for cars that were surplus to current requirements after they cut way back on the number of officials and employees who "needed" cars. Based upon their projections of need for new vehicles they found it cheaper to keep the surplus cars and store them under manufacturer guidance than to sell them immediately.

The best articles on this were oddly in some of the spanish language press. I've used the FOIA'd documents form Toyota provided to Miami Dade as a guide for properly storing and maintaining the car I store across the country for use in my remote-work location.

Joseph said...

I've been dubious about zero-hedge ever since their hysterical coverage of Fukushima.