Paul Zimmermann is feeling some deja vu these days. His new-car inventory at Matick Chevrolet in Redford last month was nearly as thin as it was during the semiconductor chip shortage two years ago.
Only this time the automakers have the parts they need to build their cars. They just can’t get the finished vehicles from the factories to dealerships because of a shortage of railroad cars.
The problem has been escalating in recent months and has grown widespread, affecting food and grain shipments, too. In the auto industry, it slows domestic shipments from U.S. factories to dealerships as well as shipping vehicles made in Mexico to the United States, railroad experts said. There are currently “at least 70,000” new vehicles stranded across the industry unable to move to dealerships to be sold, according to one prominent regulator.
“What the factory is communicating is the supply chain got corrected, but now it’s logistics,” said Zimmermann, who is a partner in Matick Automotive, which owns Matick Chevrolet in Redford Township, Matick Buick-GMC in Southfield and Matick Toyota in Macomb. “We had gotten back up again. But then we sold 165 new cars last month (at the Chevrolet store) and we used to do twice as many. They’re in transit. If it’s not one thing, it’s another.”
A person familiar with General Motors’ Fort Wayne Assembly in Indiana, for example, told the Detroit Free Press there are thousands of finished Chevrolet Silverado and GMC Sierra pickups parked in the Fort Wayne area and no rail cars available to ship them to market. The person asked to not be identified because they are not authorized to share that information publicly.
Ben Halle, spokesman for the U.S. Department of Transportation, told the Free Press, “The DOT confirms it has heard concerns from Detroit automakers and is looking into” the lack of rail cars to move finished vehicles from factories to dealerships.
‘Critical situation’ for U.S. economy
The rail car shortage has grown serious enough to prompt the auto industry’s lobbying group, Alliance for Automotive Innovation, to implore the U.S. Surface Transportation Board — the federal agency charged with the economic regulation of various modes of surface transportation, mostly freight rail — to step in.
“For the auto industry, the nationwide freight rail shortage is a major problem,” John Bozzella, CEO of Alliance for Automotive Innovation, told the Detroit Free Press in an email.
Bozzella said in a typical year, freight rail moves nearly 75% of new vehicles purchased in the U.S. and carries 1.8 million carloads of motor vehicles and parts. The chronic shortage of rail cars is creating a backlog of finished vehicles and disrupting automotive supply chains still recovering from the challenges of the last couple of years, he said.
“What to do about it?” Bozzella said. “Because these serial disruptions have the potential to impact the broader economy, we’re asking the Surface Transportation Board to intervene and make sure the country has a fully functioning freight rail system.”
Automakers reduce new-car production
Surface Transportation Board Chairman Martin Oberman told the Free Press the board is aware of the issue and is “very concerned.”
“These failures of rail service have hit the automotive industry especially hard at a time when it is recovering from the global pandemic and related supply shortages,” Oberman said. “The board is monitoring the situation and I hope the entities involved will work together to resolve this critical situation, which would be a benefit not only to those involved but also to the American economy.”
In a May 25 speech to the North American Rail Shippers Association (NARS), Oberman said in “recent months underinvestment in equipment and labor by BNSF (railroad) has resulted in a severe shortage of the railroads’ ability to move rail cars to major auto manufacturers — autoracks in particular — to take finished vehicles to market.”
He said in May that at least 70,000 new vehicles were parked near plants awaiting rail cars to get to dealerships. He said because automakers struggle to move vehicles, “auto manufacturers have already reduced production schedules by at least 50,000 vehicles.”
“The trickle-down effect of this reduced production on suppliers and employees is significant,” Oberman said in his speech. “The direct impact to U.S.-based suppliers exceeds $350 million. If the direct impact is $350 million to these suppliers, then given the typical multiplier of 11 to 1, the impact on the U.S. economy could easily exceed $3.75 billion.”
Part of the problem goes back several years when all of the major railroads started slashing their workforce, he said.
“From the high point of their employment in the years leading up to the pandemic, the four large U.S. Class Is employed a total of 141,354,” Oberman said. “At present, the number is 107,501, a drop of nearly 34,000 employees, or 25%.”
The trend is reversing for some railroads. The total number of employees has gone up by a total of 6,000. But, he said, that still leaves a shortfall from the highest-level pre-pandemic. More employees can mean better service to customers, he said.
Consumers go back to high prices, long waits
The frustration dealers feel will extend to consumers who will, once again, face a supply versus demand shortfall that will result in higher prices and longer waits for a new car. For automakers, too little inventory can ding sales and derail crucial vehicle launches. GM, for example, has two important new electric vehicles coming this year: 2024 Chevrolet Blazer EV and 2024 Chevrolet Equinox EV, both built in Ramos Arizpe, Mexico.
GM spokesman David Caldwell said the rail car shortage is not unique to a certain plant or product, therefore there are no changes to the plans for the EV launches.
He said GM is “actively working to resolve challenges and meet high customer demand for our vehicles.”
But the rail car shortage is a concern for GM, he said, because further delays can hurt customers, dealers, suppliers and employees.
Joe McCabe, CEO of AutoForecast Solutions, agreed.
“Moving the vehicles from point A to point B is a concern because if we can’t get them to consumers we have a problem,” said McCabe. “The logistics issue in the last couple of years has been muted because we had parts supply issues and couldn’t build a lot anyway. Now we’re getting back to more of a norm in production and logistics is a topic now.”
Stellantis spokeswoman Jodi Tinson said in an email that the shortage of rail capacity is presenting distribution challenges across a number of industries, including automotive, and Stellantis is “working with its various transportation partners to ensure vehicles are reaching dealers and customers in a timely manner, but urges the rail carriers to address this issue immediately to avoid any further delivery delays to our customers.”
Ford Motor Co. spokesman Said Deep said Ford continues to monitor the supply chain and “work with our logistics partners who are doing everything they can to support our business.”
None of the automakers would provide or confirm how many finished vehicles at factories are unable to be shipped due to the rail car shortage. But railroad expert Nick Little of Michigan State University said he was at GM’s Flint Assembly a couple of months ago and that plant has the access it needs to rail cars. But other plants in other locations are not so lucky, he said. Railroads have confirmed there is a shortage of rail cars and they are working on a remedy.
A shortage of autoracks
The specific problem is a shortage of autoracks — the rail cars that carry vehicles and look like they have aluminum siding, said Erik Gordon, of the University of Michigan’s Ross School of Business. Shippers can put lots of different types of freight into a box car or onto a flatbed car, but vehicle shippers need the special-purpose autoracks, Gordon said.
The autoracks are part of a pool, shared by multiple railroads and administered through a company called TTX, Union Pacific spokeswoman Robynn Tysver told the Free Press in an email.
“Union Pacific is doing everything possible to provide customers with the rail cars they need,” Tysver said.
At the moment, there are 1.6 million freight rail cars in North America and about 20% of them are autoracks, said Little, director of Railway Education at the Eli Broad College of Business at MSU. Little is also the interim director of the Center for Railway Research and Education in East Lansing.
“The actual rail car, the frame and the flat car is owned by TTX and the bodies are owned by the individual railroads and they all form parts of the pool,” Little said. “The railroads have a system of charging each other when someone else uses one of their cars or needs a repair. It’s complicated.”
There is a huge network of 170,000 miles of rail in North America, making this shortage “a very big problem and a very complex matter,” Little said. He said TTX acts as an intermediary and talks with railroads at least twice a year to ask how many autoracks they might need well in advance because it takes two to three years to manufacture new autoracks.
“So if the railroads don’t forecast auto production right, they end up short,” Little said.
‘A complex jigsaw puzzle’
Forget about shipping new vehicles by carrier truck because the cost is exorbitant with the driver’s fee and gasoline, Little said. Rail also is faster and emits less pollution. An autorack rail car can carry 12 to 18 vehicles, depending on the size of the vehicles. A truck hauler carries seven to eight vehicles maximum, he said.
Rail shipping is complex. Take for example, the heavy-duty pickups made at Flint Assembly. Those vehicles could go to as many as 120 destinations via rail before finally arriving to the terminal where they are delivered by a road carrier for the last 50 miles to their destinations. And those rail cars don’t just turn around and return to Flint Assembly for more pickups, he said.
“TTX will say, for example, you have empty cars in Los Angeles and the nearest plant is in Arizona and so they go there next. They don’t go back to Flint where they were loaded,” Little said. “It’s a very complex jigsaw puzzle.”
Several factors causing the shortage
The origin of the problem is a combination of a few things. First, the rebound in new-vehicle production after the semiconductor chip shortage abated has been faster than most of the railroads forecast.
“Additionally, supply chain pattern changes such as customers routing vehicles through west coast ports instead of the east coast have resulted in rail cars traveling longer distances than forecast,” Patrick Waldron, spokesman for Canadian Pacific Kansas City (CPKC) railroad, said in an email.
Some Asian and European auto shippers have changed their supply chains, resulting in routes where rail cars travel longer distances now, tying them up, Waldron said.
The shift in consumer tastes from cars to pickups and SUVs in the last decade has had an impact. A railroad can load three levels of cars in an autorack, but only two levels of trucks and SUVs, Little said. Now there are EVs increasingly entering the market that weigh more than gasoline vehicles because of their batteries.
“It’s getting more difficult to load them on the autoracks safely. The Hummer can only be loaded on the lower tier of the rack, so you have to find other vehicles to put on the upper racks that are going to the same location,” Little said.
There are also market disruptors such as Tesla and Chinese-made vehicles tying up the rail cars. McCabe said Chinese-made vehicles have taken off in Mexico. In 2019, there were 7,700 such vehicles sold in Mexico, he said. Last year, there were 71,000 sold. Through April, McCabe said about 39,000 Chinese-made cars have been sold there. The heavy import of Chinese-made cars into Mexico’s ports ties up the trains in Mexico.
Also contributing, McCabe said, is the rise of Tesla’s production at its factory in Fremont, California, in recent years and now a newer plant in Austin, Texas. Those vehicles are shipped in long West-to-East runs, again on autoracks.
The Detroit Three in Mexico
It is crucial for the Detroit Three automakers to find a solution to the rail car shortage, especially in long hauls such as those from Mexico to the United States. Here is what the Detroit Three automakers build in Mexico that is shipped largely by rail to the United States:
- Stellantis: Jeep Compass, RAM ProMaster, RAM light-duty and heavy-duty pickups in Mexico.
- General Motors: Chevrolet Silverado, GMC Sierra light-duty pickups, Chevrolet Blazer SUV, Chevrolet Equinox SUV and GMC Terrain SUV. Soon, the Chevrolet Blazer EV and Equinox EV.
- Ford Motor Co.: Bronco Sport, Maverick pickup and Mustang Mach-E SUV.
For GM, it is crucial to get the Equinox and Blazer EVs to market smoothly to encourage mass adoption of those new EVs as the automaker shifts to all electric by 2035. The 2024 Blazer EV, which starts at $44,995, is due to market this summer and the 2024 Equinox EV, which GM has said will cost under $30,000, comes out in limited production this fall.
The railroads respond
The Class 1 railroads — those with annual revenue over $250 million, such as CSX, Union Pacific, BNSF, Norfolk Southern and Canadian Pacific Kansas City — are working on a fix.
- CSX: Former Ford executive Joe Hinrichs is CSX’s new CEO and has been praised by Oberman for adding a “meaningful number” of employees, 440, and boosting morale to improve CSX’s service. In an email to the Free Press, spokesman Bryan Tucker said CSX does not directly connect to a Mexican railroad nor has it been the cause of the rail car supply issues. It continues to collaborate with “the various constituents in the automotive supply chain” to improve equipment availability and utilization. CSX is adding 800 autoracks to its fleet this year, Tucker said. It is the only Class 1 railroad the Surface Transportation Board has relieved from enhanced oversight.
- Norfolk Southern: The company has “taken steps to increase network velocity, which cycles rail cars quicker, and we’re opening five new repair shops so rail cars needing maintenance can be more quickly returned to service,” spokesman Connor Spielmaker said.
- CPKC: Waldron said its new single-line network — which was formed by the combination of Canadian Pacific and Kansas City Southern in April — has created efficient supply chain options for automakers, especially out of Mexico.
- BNSF: The railroad is working with carmakers on the problem, Lena Kent, general director of public affairs, told the Free Press in an email. She said BNSF has “the fastest automotive network velocity in the industry, but there is still room for improvement. Our focused efforts to increase velocity in our auto network are paying off. We’ve seen a 14% improvement in automotive velocity this quarter while handling record volumes — and our momentum continues to build. Faster velocity equals more equipment turns and more volume moved.”
Kent did not respond to inquiries seeking the exact volume or improvement figures. She said that when new vehicle production declined during the pandemic and related parts shortages, BNSF intentionally blended automotive volume into its carload network. So it has improved shipment speed by restoring its dedicated automotive network, which will lead to more consistent and reliable service. BNSF is also purchasing additional equipment, with production expected to begin in September, she said without providing further details.
“All that being said, the challenge to move more vehicles to market cannot be solved by railroads and equipment alone,” Kent said. “All supply chain participants have a role to play; to work together to recognize and address factors that have fundamentally changed the North American automotive supply chain.”
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Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.