September 8, 2020
America’s love affair with the automobile was temporarily put on hold in March and April this year when much of the North American economy shut down during the early stages of the coronavirus pandemic.
Consumer demand fell off a cliff and dozens of auto assembly plants closed — only to rev up like a muscle car in June when lockdown restrictions eased in some parts of the U.S., Canada and Mexico, and new auto plant production and safety processes were implemented. New vehicles gradually began rolling off the assembly lines once again.
COVID-19 Hits Hard
It’s hard to imagine how bad it was for the auto industry in those initial weeks of the pandemic.
Sales plunged 46% in April 2020 from April 2019. This collapse in demand was even more jarring considering it came after the best five-year period in history for North American auto sales. As demand evaporated, auto manufacturing plants fell like dominoes, resulting in the closure of some 68 North American assembly plants by April. North American auto production plummeted: in the U.S. alone, production fell from an annual rate of 11.4 million vehicles in February to an annual rate of just 0.1 million in April.
However, after putting in place facilities and processes that safeguarded workers against COVID-19, auto plants began reopening in mid-May, and by early August, only a handful remained closed.
“Because of the reopening of automotive plants, North American rail carloads of autos and auto parts rose from around 2,700 per week in April and early May to more than 21,000 per week by the end of June and more than 25,000 per week by August,” said John Gray, AAR’s Policy and Economics Chief.
Coming Back Online
How was an industry so integral to the U.S. economy able to rev up so quickly, coming back online and putting thousands of people back to work?
Freight railroads are a big and indispensable part of the answer.
North America’s freight railroads helped provide the means and the power for auto facilities to get back to business. Not only did they transport the auto parts and other materials to and between the assembly plants, they also delivered finished vehicles from the plants to distribution centers across all three nations and to ports for export around the world. That successful resuscitation of the auto industry without missing a beat and getting vehicles to where they are needed to meet anticipated consumer demand across the country could only occur because of rail’s customer-first approach, its vast operational expertise and ongoing investments in its own critical infrastructure.
During the pandemic, collaboration between the auto industry and the freight rail industry has been essential. From one iconic American industry to another, freight railroads have a long history of partnering with automakers and are experts at efficiently moving whatever vehicles drivers want. Customer communication is a hallmark of all railroad operations and it was especially important as automakers ramped up production so that potential problems could be addressed early on and efforts could be coordinated.
Strategic Investments & Close Coordination Pays Off
Freight railroads knew ahead of time how to respond effectively to the waxing and waning of automobile demand.
Auto plants typically shut down for about two weeks in July each year to re-tool their plants to make new model year vehicles and for heavy maintenance. These operational pauses and subsequent ramp-ups served as “dry runs” (albeit far less intense) for what happened this year, providing valuable lessons to both railroads and automakers.
Ongoing strategic investments in recent years in infrastructure, equipment and technology have given freight railroads the ability and flexibility to meet automakers’ needs and set the stage for railroads’ agile response to changing market conditions during the pandemic. For example, railroads’ recent investments in new, multi-level autoracks — specialized rail cars used to transport finished vehicles — enable automakers to ship more vehicles at once and help ensure railroads have enough equipment to stage in strategic locations to meet the increased demand they knew was coming once plants reopened. Laying additional dedicated track in and out of new auto plants in Georgia, Kentucky, and California and building specialized rail yards enhanced capacity and productivity, while new routing strategies have reduced shipping times. Meanwhile, rail industry investments in tracking technologies allow manufacturers to more accurately track auto shipments while predictive analytics help improve delivery windows.
The result of all this deep coordination and focus on operational efficiency has been on-time transportation of finished vehicles from factories to markets, even in the throes of the worst pandemic to hit the U.S. in a century. Railroads provide premium service to automakers during normal times and they have been able to maintain this same standard during the complexities of emerging from the pandemic.
The collaborative relationship between the auto and railroad industries pays dividends well beyond the two sectors. Railroads move the raw materials and finished goods that automakers and their suppliers need — including steel, copper, plastics and materials for manufacturing glass —supporting hundreds of thousands of North American jobs across many industries. By helping get auto plants back online, freight railroads created a ripple effect by supporting recovery through the entire economy.
Dan Papineau, Director of Tax Policy and Regulatory Affairs at the Michigan Chamber of Commerce, puts a fine point on the century-long relationship between railroads and the auto industry. Rail has long played an essential role in moving the auto industry, “from the early 1900s and Henry Ford’s Highland Park assembly plant to today,” he wrote.
The pandemic has put that essential relationship to the test. And automakers — and railroads — have succeeded.