Auto Sprawl

If you want to see what economists mean by “inventory overhang,” take a look at the parking lots around any of the major auto ports. They are jammed with thousands of new car imports that have no place to go. The dealers can’t take them.

So many imported autos are piling up around major U.S. ports of entry that foreign automakers are leasing additional acreage to store them until they can be delivered to dealerships, when ownership shifts to the dealers. Some dealers can’t take delivery because they can’t get credit to finance their inventories.

“We’re experiencing a lot longer dwell times with our auto imports,” said Jim White, executive director of the Maryland Port Administration. He said 57,000 imported cars were parked at public and private terminals around the Port of Baltimore in mid-February, 10,000 more than normal.

“The higher-end luxury cars that used to move out very quickly in about four to seven days now take two or three weeks.”

The overflowing terminals are a stark sign of the beleaguered state of the automobile industry, and they are a headache for everyone from car dealers to auto carriers and supply chain specialists at major auto companies. Car lots will remain crowded, as there’s little hope sales will pick up in the first half of 2009.

As U.S. port terminals fill up, overseas car manufacturers are cutting back production, and shipping lines are idling vessels. NYK may double the number of car carriers it retires as Toyota Motor, Honda Motor and Nissan Motor slash production.

The Japanese ocean carrier may scrap and park as many as 20 car carriers, on top of the 20 it is already planning to scrap by March 2010, Mikitoshi Kai, head of investor relations at NYK, told Bloomberg in Tokyo last week.

“Every day we are asking auto manufacturers about their export plans for next year, but we have not yet received any figure,” Kai said.

NYK, the world’s largest car carrier, predicts Japan’s car exports will slump by more than 33 percent in the first quarter as the worst U.S. car market in 28 years forces Japanese manufacturers to reduce output. The country’s auto exports tumbled 34 percent in December, their biggest drop since recording began in 1972.

Tighter lending and rising unemployment in the United States, the world’s biggest auto market, led to a 37 percent decline in vehicle sales last month.

The backlog at auto gateways began to build up late last summer, and cars piled up through the fall as consumers shut their wallets. Cars kept coming into the auto ports because there was an almost three-month lag between the falloff in consumer demand and the time when foreign automakers could scale back production.

But the imported cars stopped at the ports. Automobile-related shipments for large U.S. railroads fell 21.5 percent in 2008 and then dropped nearly 60 percent in the first six weeks of this year.

Things are even worse in Europe. White said one of the ro-ro carriers that serves Baltimore told him between 90,000 and 100,000 vehicles have accumulated at Bremerhaven, Europe largest auto port — imports dealers aren’t picking up and exports that European producers won’t ship.

The space situation has gotten so bad that Toyota is leasing a car carrier from Wallenius Wilhelmsen Logistics to store about 2,500 cars in the southern Swedish port of Malmo, according to John Felitto, the Swedish-Norwegian car carrier’s executive vice president for the Americas.

Although the car carrier’s volumes are down, Felitto said the downturn has created some opportunities. “We are calling at previously underserved markets that we didn’t have capacity to serve before,” he said. “For example, we are now calling at Port of Tacoma, and we have increased our sailings to Australia.”

In Baltimore, the MPA moved inventories of Hyundai cars to airport parking lots to make room for cars still on the high seas. The port agency bought about 15 acres of land across from the Dundalk Terminal for overflow space for cars about six weeks ago, but has not yet had to use it. “That’s because the Korean manufacturers, who had never shut their plants down, have cut back production by 30 percent,” the MPA’s White said.

The situation is much the same in Long Beach, where Toyota and Mercedes Benz land their West Coast imports. “There is still a lot of cars out there — thousands — but there’s only a trickle of cars coming in,” said Art Wong, a spokesman for the Port of Long Beach. He said Toyota, which has about 150 acres of storage space at the port, has acquired another 15 to 20 acres to park its unclaimed cars. Mercedes Benz, too, acquired an additional 20 to 30 acres for its imports.

Toyota, which used to import 5,000 cars a week on two vessel calls, has cut back to one call. Mercedes, which used to import 2,000 cars a week on two ships per month, has also slowed imports. Both carmakers have cut back production in their native auto plants, but Toyota plans to ramp up production in Japan to around 200,000 vehicles in May, an increase of roughly 30 percent from the output of the three preceding months. That’s still about 40 percent lower than a year earlier, and a full-scale recovery in production is not expected any time soon.

IHS Global Insight expects U.S. auto sales in the next couple of months to look like January’s slow pace, when sales ran at a 9.5 million unit annual rate, before sales eventually start to pick up. It expects the auto market to build some slow momentum toward the end of the year.

“We’re looking for 10.4 million in new car sales this year, compared with 13.2 million last year,” said George Magliano, the firm’s automobile economist. It is forecasting sales of 12.5 million units in 2010. “It’s an improvement, but it isn’t a hell of a lot,” he said.

Paul Taylor, chief economist for the National Automobile Dealers Association, also thinks sales will turn up in the second half of the year. He said cars being scrapped soon will outnumber new car sales by a million a year, which means buyers will have to replace them at some point.

Cars and trucks produced in Detroit are still selling in the Midwest and the mid-South. But Taylor thinks sales of imports, which usually sell best on both coasts, where home prices have been hardest hit, may not pick up as quickly.

“What you typically have is a 50-day supply of Asian car imports and a 56-supply of European imports,” Taylor said. Currently, the inventory overhang of Asian auto imports represents a 99-day supply, while the accumulation of European imports amounts to a 115-day supply.

It’s far worse for the Big Three Detroit automakers. Their inventory overhang, normally a 60-day supply, has built up to 146 days supply, Taylor said.

Peter Leach can be contacted at pleach@joc.com.