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When excess stock becomes a solution

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https://www.caradisiac.com/Surcapacite-des-constructeurs-automobiles-en-Europe-des-fermetures-d-usines-a-venir-76679.htm
Over the summer, Volkswagen reportedly stored something in the region of 200,000 cars at the new but still delayed and unused Berlin airport (https://www.dw.com/en/volkswagen-to-store-cars-at-delayed-berlin-airport/av-44446169 ). By Spring 2019, the industry may view high levels of excess stock a tactical necessity. 
Despite the media attention, Volkswagen are not alone, as many carmakers have been stockpiling unsold new cars across Europe over the last few months. The cause is the response of carmakers to the timetabled changes in the testing regime for new cars, to a new set of rules (WLTP). There are two reasons why this change in testing regime has led to excess stock. Firstly, some models and derivatives cannot be sold until they have passed the new emissions testing regulation. The new tests promise a closer approximation of real-world driving conditions, and to achieve this the tests last longer and are extended to different engines, powertrains and performance changing optional equipment. The result is a huge surge in demand for vehicle testing which has not been matched by a significant increase in testing capacity. The resulting testing backlog has led to delays to new product launch and non-availability of certain engines and derivatives of existing models. Secondly, the transition arrangements from the old testing regime contain provisions for selling a limited landed and in-market stock of vehicles that met the old testing regime but do not meet the new rules. This has led to some carmakers landing specific model stock within the markets for a run-out programme. For example, in August, sales in Germany jumped 25% in response to the need to clear specific inventory
(http://europe.autonews.com/article/20180905/ANE/180909899/german-sales-rise-25-ahead-of-wltp ). This period of growth of new vehicle stock has meant exceptional demands on the third-party providers of vehicle storage capacity and transport. 
The timetable for the staged changes in the testing regulation had been fixed for some time; the market stocking implications of the test changes could have been anticipated with a high degree of certainty - but they were not. Consider then that the Brexit process, which presents the next clear and imminent challenge for the new vehicle supply chain in Europe, currently lacks any degree of certainty at all.
All carmakers will be considering the import and export implications of the outcomes of the Brexit process, but are doing so without any visibility of the commercial landscape that will be in place in Spring 2019, a period well within current production planning horizons and budgets. BMW has already stated that it will bring forward a planned four-week factory shutdown for the Mini plant to coincide with the date Brexit is expected to come into effect, to allow mitigating measures to be put in place as required (http://fortune.com/2018/09/19/bmw-mini-brexit-auto-industry/ ). Other OEMs assembling in the UK, and those that source significant components from the UK, will also be urgently undertaking scenario planning to consider their response. Today’s globalised car industry presumes a free and low-cost flow across borders, with as little disruption as possible from tariffs, administration or delays. As a result, inbound component supply is, as well understood within the sector but seemingly not outside it, timed with a high degree of precision and designed to flow across borders with as little hindrance as possible. As with the problems caused by emissions testing regime changes, a natural response to any bottleneck is to pause production to design a workaround to the problem and/or build stock as a buffer. So to maintain sales, carmakers will be looking to build stock of finished vehicles (and buffers of components) either side of a possibly disrupted trade border. Innovation around bonded facilities and more flexible processing centres may in time help lessen the cost impact of the disruption and stockpiling. However, in a sector that consistently suffers from excess stock, but knows how to clear it when required, unusually high levels of tied capital may appear to be the only reliable response available at this point to prevent a drought in sales for products and flows most heavily intertwined with UK supply chains. That assumes of course that demand in the new car market, both in the UK and Europe as a whole, is not negatively impacted by any wider, significant and unforeseen financial system consequences of the unfolding Brexit process.
Written by Ben Waller
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