By January 27, 2009 11 Comments Read More →

Holy Overproduction, Batman!!

Lean Service Blog: Unsold cars

Hat tip to Rob and the Lean Service Blog for pointing out these online pictures of auto industry “overproduction.” Storage lots are filling up in England, as automakers keep factories running, cranking out cars that don’t have customers. Click the photo to view it in all of its auto density.

The photo is captioned as “Imported cars stored at Sheerness open storage area awaiting delivery to dealers.” Is this happening in the U.S., as well? Yes, later photos in that set show lots in New Jersey and a lot full of Ford trucks.

If an automaker recognizes revenue when they ship to a dealer, they have an incentive to overproduce, even if there’s not an end customer for the vehicle? Chrysler has been in the news for pushing dealers to take more inventory. This doesn’t solve the root of the problem of “low sales.”

Eventually, lower sales has to translate into lower production. Anything else is just a shell game to keep plants running and boost revenue figures. Just building cars to stack them up in parking lots isn’t sustainable. It’s not “Lean” by any means, where the goal is to build exactly to customer demand, with the lowest possible inventory. Chrysler’s actions don’t exactly represent the type of long-term thinking you’d want to see in a Lean system.

Oh, here’s a picture of a Toyota import lot in California:

With sales down 35 to 50%, what choice do you have but to slash production? Unless you want to just play accounting games, building the “asset” of inventory…


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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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11 Comments on "Holy Overproduction, Batman!!"

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  1. IndianaSharon says:

    I noticed lot after lot of cars/trucks when I flew over the ship yards in Newark yesterday. Massive overproduction. It looks like these vehicles will still be available when the new model year rolls around…then what…

  2. glanger says:

    Amazing isn’t it? Maybe they should hand out a bit of the bail-out money they got with each car. That would give us government subsidized vehicles :-)

    In any case, on the flip side, it means that there will be some very good deals to be made if you are looking for a new car?

  3. Doug Brickey says:

    Obviously, they are building inventory to maintain Heijunka!>:}

  4. Mark Graban says:

    Yes, Doug, they are obviously just looking out for the suppliers, not wanting to jerk around their component production schedule!

  5. scottsorheim says:

    Unbelievable!

  6. Vladimir Dzalbo says:

    Er..

    I’ll add slightly different comment here, I guess.
    I was involved in a project for one of such finished vehicles storages and should say that most of them have nearly the same amount of cars throughout the year.

    What is interesting, it’s not always caused by overproduction:

    1) Cars are shipped in huge batches (yeah, you would say it’s totally not Lean… but still it seems a bit difficult to get smaller transport units)

    2) Many of these cars are in fact made to order and they already have their owners waiting for them..
    It’s unbelievable how huge the lead time to get the car you wish is and yet a vehicle can stay at the lot for a couple of weeks because of…

    3) … cars being delivered to owners or retailers in small amounts. See, you have a huge ship bringing vehicles from US and Japan to Europe. And then there is just a limited number of trucks which make final delivery.
    You might have 100K “made-to-order” units arriving but still you would need at least a month to get them all to the customers with all 100 trucks you posses.

    Shortly – yes, there is huge overproduction in Automobile industry at the moment, we knew that before.
    Nevertheless based on my experience this picture could be taken as well one or two years ago. The whole supply chain actually does look very ugly.

    P.S. And again, from my own experience, you cannot imagine how much it costs for Automotive Logistics companies to maintain these storage lots.. Just think about locating, tracking, moving items all over the place.

  7. David says:

    Vladimir…”Cars are shipped in huge batches”…understand the need for batching for ocean transportation, but what about domestically? What is driving the need for a high level of batching–railroad policies, maybe? I notice when trains pass containing automobile cars, there are usually a lot of them, not just one or two.

  8. Vladimir Dzalbo says:

    David, to my knowledge, the switch from trains to trucks is something that is already beginning to happen.

    And that’s exactly the reason why you have this huge amount at the storage lot: once you have delivered a batch from overseas, you have to slowly transfer them domestically. And if you do it in small amounts, you will inevitably have thousands of cars just waiting.. Unless you have a million of trucks waiting there for the ship.

  9. Anonymous says:

    Yes, there is overproduction, but be careful about judgment just by a picture. A single factory may produce 1,000 cars in a single day. Is this really a lot of cars? As Vladimir, there are some very normal operating conditions that makes it look like a lot but it isn’t really. These pictures really are highly abnormal.

    You have to understand it only by days on hand. Yes, it’s growing. Yes, they have overproduced. Yes, they are trying to force dealers to take cars that they don’t want. But these pictures tell you none of that.

  10. Mark Graban says:

    Thanks for the comments and the insight everyone.

    I guess the interpretation depends, in some part, on whether “awaiting delivery to dealers” means they

    1) have a buyer ready

    or

    2) they’re waiting indefinitely to delivered somewhere, someday, TBD

  11. andrewmc says:

    We are picking up a BMW 320i M Sport on Saturday, couple of points to note. The dealer we were in last Sunday did their entire January target on the 15th, at 79 cars, they did 27 cars last week. Unless you are buying a used, demonstrator or a basic model (you can have it in any color you want so long as its black) or a older model year, you're waiting for it to be delivered. Most models are still not from stock, so unless the spec you want is sitting at some port, the lead time is 4-6 weeks.

    That said, you can get killer deals, one year old, >500 miles, reduced from £28k to £16k.

    There have always been piles of cars like this up and down the UK, at ship yards, rail yards and in a variety of storage locations. This is not significantly different.

    If you wanted to be able to see the difference you'd need to see how frequently they are turning over.

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