AUTOMOTIVE INSIGHT: Less Overcapacity Will Hurt Consumers

October 29th, 2008 at 3:41pm

As heard on
WWJ Newsradio 950

Listen to this story:

Automakers are closing plants to reduce overcapacity and make themselves profitable again, and as strange as it sounds, that’s going to be bad for car buyers.

In the global auto industry today there are probably 20 million units of overcapacity. That is, the industry can build more cars than there are people to buy them. And you know what happens when you have a surplus like that? Prices go down.

For the last two decades car buyers have been the beneficiaries of this overcapacity. Automakers have had to keep a lid on prices, or offer all kinds of incentives, to lure people into their showrooms and not their competitors.

But now, with so many automakers losing money, they’re closing plants and reducing that overcapacity. And that means the next step is that prices of new vehicles will start edging up every year. My guess is that in the next five years the average MSRP is going to be somewhere around $40,000.

One Comment to “AUTOMOTIVE INSIGHT: Less Overcapacity Will Hurt Consumers”

  1. Winger Says:

    I believe this overcapacity is likely a result of Big 3 market share erosion.

    Buy one now since you should be able to get the deal of the century. Field stock is bulging at this point.

    I agree with what you are saying about prices.A lot of domestic product changes will take place in the next 5 years as well.