57 million unwanted cars are dragging down Big Auto

The automobile changed our world and symbolizes prosperity and personal freedom for billions of people. Making automobiles, meanwhile, is a miserable, grinding affair.

The world’s automakers eked out an aggregate operating margin of just 3.6% last year; it was collectively less in dollar terms than that of just one large technology company, Apple Inc.(1) Understanding why helps to explain the current angst surrounding iconic car brands in the U.S. and Europe and the threat from Chinese new entrants — and what might be done to address it.

The big problem is that, as much as customers like buying cars, nations are more in love with just making them. The closure of a car plant is as much a societal bombshell as it is an economic decision, which means that decision often gets deferred. No politician wants to see thousands of jobs lost on their watch. Auto plants aren’t just factories for consumer products but also symbols of economic vitality and reserves of industrial capability underpinning national security.

The result is chronic overcapacity. About 85 million new passenger vehicles will be sold around the world this year, according to a new report from BloombergNEF.(2) Yet the global industry is capable of churning out 142 million vehicles.

Building assembly lines is capital-intensive, so profitability rests on running them as much as possible to spread fixed costs across as many vehicles as possible. The breakeven point to cover costs, in terms of capacity utilization, isn’t set in stone, but industry analyst Glenn Mercer posits a threshold of 80% or more. This makes the current global level of 60% look dismal. Barring South Korea, none of the major automaking nations or regions look particularly good on this front. The US has notably lost the leading position it held beforethan the pandemic.

Roughly 28 million vehicles’ worth of new manufacturing capacity has been added over the past decade, and four-fifths of that is in China. Yet sales have risen by only 5 million over that same period. China’s own vehicle market has plateaued, leaving the country with enough capacity to make more than two cars for every one sold there. Domestic automakers are now pushing millions of vehicles overseas in order to keep their plants running; without that, their utilization would be below 50%, rather than a merely dismal 60%. China is exporting its excess car capacity problem across the world.

The rest of the world has noticed. The U.S. has effectively closed itself off from Chinese models. As Washington seeks to reshore ever more of its automotive supply chain, it has also turned against its North American free trade partners, with Mexico, a major exporter of vehicles, looking particularly exposed. Europe is imposing quotas, having tried and failed to stem the tide of Chinese imports with tariffs, and with mighty Volkswagen AG now taking the once unimaginable step of ending production at several German plants.

An added complication is electrification, a multi-speed process encompassing battery-electric vehicles, range-extended EVs and different flavors of hybrids. Incumbents including General Motors Co. and Ford Motor Co. are reconfiguring plants for flexibility to shift production between different types of drivetrains. This type of mixed-assembly accounts for roughly half the world’s capacity, according to BloombergNEF, and is projected to overtake internal combustion engine-only capacity in the US this year.

The shift to EVs exacerbates the problem of excess capacity, as not only Chinese EV makers but startups such as Rivian Automotive Inc. open their own dedicated assembly lines. While dedicated capacity for producing gas-guzzlers is projected to decline by about 5 million units by 2030, more than 10 million vehicles’ worth of mixed and EV-only capacity is expected to open in the same period.

A healthy industry demands that capacity be taken out of the system. As trade restrictions grow, that process must center on China, home to only a quarter of global vehicle sales but more than a third of its manufacturing capacity. There is, however, a deal to be struck that could help with this process, with the U.S. leading the way.

As much as U.S. automakers are shielded from Chinese competition for now, they also risk irrelevancy and condemning American drivers to unaffordable vehicles under perpetual protectionism. Accommodating Chinese competition through mandatory joint venture plants in the US offers a way of importing needed know-how and technology without sacrificing the domestic industry altogether (as I have argued here).

The key would be to repurpose existing capacity for Sino-U.S. joint venture plants; opening brand new ones would compound the existing problem of excess. We have seen examples of this elsewhere already, such as Ford’s deal with Geely Automobile Holdings Ltd. at an underutilized factory in Spain. 

While U.S. politicians are angst-ridden about encroachment on the autos market, Chinese automakers’ need to diversify away from their own oversaturated market provides a lot of leverage in negotiations. Using that could not only help manage the process of infusing Chinese competition into America’s car market. It could also offer an inducement to rationalize China’s own bloated manufacturing capacity and a means to revivify at least some underutilized plants in the U.S. A humming assembly line is usually preferable to a moribund one, even if under two flags. 

(1) Based on a sample of 63 listed automobile manufacturers with a market capitalization of at least $1 billion (source: Bloomberg). Total adjusted earnings before interest and taxes in calendar year 2025 was $106 billion. Apple’s adjusted Ebit was $141 billion.

(2) "Global Car Production Capacity: EV Focus to Flexible Lines," Siyi Mi and Aleksandra O’Donovan, BloombergNEF, Oct. 12, 2026.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited The Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.