Rail car shortage eating into automakers' profits

on Wednesday, April 13, 2011

Rail car shortage eating into automakers' profits  Automakers in the U.S. and around the globe have had to contend with component shortages in the wake of the March 11 earthquake and tsunami that struck Japan, forcing the country's businesses to close and temporarily shutter a majority of its production facilities. Now, U.S. carmakers are also grappling with supply chain issues resulting from delays in rail shipping, the Wall Street Journal reports.

During the recession, many shipping companies took hundreds of thousands of rail cars into storage and cut their staffs as demand plummeted. However, as demand has rebounded - especially among car manufacturers - the same companies have been slow to bring their shipping capacity back to pre-recessionary levels; the delays have caused stalls in the delivery of finished vehicles.

Currently, there are nearly 4,000 brand new automobiles produced by Chrysler sitting at the Michigan State Fairgrounds & Exposition Center in Detroit, Michigan. Moreover, General Motors announced it has also been forced to delay car shipments by a day or two for as many as 1,000 cars at a time, while Ford has a similar glut of finished cars awaiting delivery to dealerships.

Without an adequate rail road system to deliver the cars, however, the Big Three automakers have been forced to absorb losses while they wait for the cars to be transferred throughout the U.S. The delays are beginning to eat into their profit margins and are preventing the companies from benefiting from the surge in new car sales that has helped GM, Ford and Chrysler post their most impressive revenue and profit results in the past decade over the past few fiscal quarters.

BB&T Capital Markets analyst John Mims said the railroad industry has been largely unprepared for the surge in demand from automakers, and is still struggling to recover from winter's inclement weather that caused backups and forced many companies to reroute their trains. "Rail companies are good at delivering a high volume at a consistent rate," Mims told the newspaper. "Where they have the problem is responding to a surge in demand. We will know if it's a seasonal or systematic problem if it drags into April."

Automakers face delays of anywhere between a few days to a few weeks because of the decreased rail activity, analysts assert; as they wait for the rail companies to adjust their fleets and boost capacity, automakers have finished cars piling up in lots throughout the upper Midwest. A GM spokesperson said the shortage of rail cars has "created a hiccup in our system," while Chrysler has so far declined to comment on its inventory woes.

"We are working with our transportation partners to address the situation, and we will continue to work aggressively to ship vehicles to our dealers and customers as quickly as possible," Todd Nissen, a Ford spokesman, said in a statement.

Time is of the essence when it comes to delivering new vehicles to dealerships, analysts affirm. A majority of Chrysler's vehicles awaiting shipment are pickup trucks - a particularly hot seller during the surge in auto sales - but higher gas prices could start to eat into those sales figures as time goes by. Automakers are working to tap into the high demand for their new vehicles before consumers trim back spending because of surging energy prices.

Railroad operator CSX Corp said an uptick in new auto sales and a shortage of rail cars have created supply issues. "Since the economic recovery began, locomotives and rail cars have been re-deployed to meet the additional automotive demand," CSX spokesman Gary Sease said in an email. "Early this year, our automotive distribution network was impacted by winter weather, a surge in demand, new model launches, and structural changes in trucking services used by many automakers."

3 comments:

Anonymous said...

We've had a 2011 Ford Explorer on order since Jan 11, that is in Chicago waiting on a train. For the last 3 weeks Ford's shipping status says ready to ship. Kind of ruins the new car buying experience!

Anonymous said...

don't beleive the rail car shortage story...the real reason they are backed up is because Allied Systems withdrew their carhauling services and there is no other carrier able to keep up to the production plants...vehicles are piling up all over the U.S. and Canada and the manufacturers want the buyers to believe that it is business as usual meanwhile there is no carrier able to fill the void left by Allied

Anonymous said...

I've had a 2011 Ford Explorer ordered that is designated "ready to ship" since mid-April. As of yesterday...no change. I know it will be great when it gets here...but come on.

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