Wednesday, June 13, 2012

U.S. Auto Assemblies Unexpectedly Surge Back to 2007 Levels, Creating a Shortage of Rail Cars

The Federal Reserve reported recently that U.S. motor vehicle assemblies totaled 10.7 million units in May (seasonally adjusted at an annual rate), the highest monthly production level since August 2007, almost five years ago before the Great Recession, and almost three times the recessionary low of 3.7 million units in January 2009.  At the current rate of  monthly increases, motor vehicle assemblies will be above 11 million units within a few months, and back up to 12 million units by the end of this year.

The recent, and somewhat unexpected, surge in U.S. auto production to pre-recession levels so quickly in the last year has brought about a new problem - a shortage of rail cars used to transport cars and light trucks from assembly plants to dealerships, as Automotive News is reporting:

"As of May 18 , daily inventories of vehicles awaiting shipment totaled 81,470 units -- well above the standard daily inventory of 69,000 vehicles, according to a report from TTX Co., a Chicago firm that coordinates rail shipments of vehicles for the railroad industry.

Auto executives fear rising North American vehicle production could trigger chronic -- and serious -- transport bottlenecks. "It's a nightmare right now," said Mike Nelson, Toyota Motor Corp.'s national manager of rail strategy and operations.
  The rail-car shortage is especially bad for assembly plants in the Midwest, and somewhat less serious for West Coast ports that handle shipments of Asia-built vehicles. The delays will be tough to fix because automakers require special rail cars, called autoracks, to transport vehicles. Bi-level autoracks carry 10 full-sized SUVs and pickups, while tri-level autoracks hold 14 cars.

The railroads have a shortage of tri-level autoracks, now that cars are once again outselling trucks. But railroads need time to build these transports, and forecasters did not expect North American auto production to recover so quickly after the recession."

HT: Unknown

30 Comments:

At 6/13/2012 8:36 AM, Blogger Larry G said...

again.. yet another metric that seems to ignore the unemployment rate.

so a question.....

If you look at the age demographics for unemployed:

http://www.bls.gov/cps/cpsaat03.htm

it seems to be tilted towards the young with well over 1/2 being in the under 24 ages.

What would the unemployment rate be if you excluded those under 24?

 
At 6/13/2012 9:40 AM, Blogger bart said...

And a case can be made that it is cherry picking too.

Weekly total rail carloadings, per AAR, have been negative on an annual change rate basis for many months. The most recent week was down 3%.

 
At 6/13/2012 10:11 AM, Blogger Buddy R Pacifico said...

"And a case can be made that it is cherry picking too."

WTF? Here is a summary of the post:

U.S. auto assemblies > U.S. railroad autorack capacity.

 
At 6/13/2012 10:18 AM, Blogger bart said...

Spin it however you like.

It presents an EXTREMELY small portion of overall rail traffic, which has been down YoY for months.

End of story.

 
At 6/13/2012 10:19 AM, Blogger Unknown said...

@bart,

The decline in railcar loadings has mostly to do with a decline in coal loadings, which has everything to do with a warmer-than normal winter and a switch from coal to natural gas. Grain loadings have also been weak. Intermodal loadings, which are more a reflection of what's happening in the economy, are actually up. Talk about cherry-picking!

And in the most recent week, motor vehicle equipment and parts loading are up over 18% y-o-y.

LINK

 
At 6/13/2012 10:21 AM, Blogger morganovich said...

bart-

i think that's mostly coal.

http://www.calculatedriskblog.com/2012/06/aar-rail-traffic-mixed-in-may.html

intermodal is actually up slightly year on year.

i think this may be more of a mismatch of car types than an overall cars issue.

you can't load a chevy into a coal hopper car. (well, you could, but i suspect it might have a serious impact on resale value)

 
At 6/13/2012 10:26 AM, Blogger Mark J. Perry said...

For the most recent week, intermodal units are up by 4.1% vs. last year, and rail carloads are down by -3.1%. That pattern has been consistent all year, with intermodal units up and close to an all-time high, and carloads down.

YTD, intermodal traffic is up 2.9% and carloads down by -3.1%.

But one of the main reasons that carload rail traffic is down is because of HUGE reductions in coal shipments (-11.5% YTD), because of the increased use of natural gas for electricity generation.

 
At 6/13/2012 10:35 AM, Blogger Buddy R Pacifico said...

bart,

There is no cherry picking in the post. The post states that U.S. auto assemblies are surging and there is not enough RR capacity to move the autos and trucks.

Please cite evidence that disputes this case, to support your cherry picking "spin". For instance, adequate autoracks or phantom auto assemblies. Maybe you just wanted to go off-topic to make a point.

 
At 6/13/2012 10:39 AM, Blogger bart said...

Even when taking intermodal into account, total rail is *still* slightly down year over year and has been trending lower for months - accurately reflecting the slowdowns and impending slowdowns... worldwide.

Rail data in China and the Euro area are even worse.

And it is still true that auto assembles represent an extremely small portion of overall rail traffic.

And the Cass freight indexes also look pretty poor, plus clearly show the large inflation.

http://www.nowandfutures.com/images/cass_freight_index.png

 
At 6/13/2012 10:48 AM, Blogger bart said...

Also, I said "a case could be made", not that the post represented total cherry picking.

It is quite well known that Dr. Perry is optimistic and hopeful, and that I'm a lot less so.

For anyone that doubts my stats, do your own work and research. The facts are the facts, including the YoY drop in total rail etc.

All time high in total rail is over 650k/week and the most recent week is about 525k - *very* far from an all time high.

 
At 6/13/2012 11:07 AM, Blogger bart said...

And here's another negative - retail gasoline deliveries continue on their downtrend since 2007 - with mostly negative YoY change rates.


http://www.nowandfutures.com/images/retail_gas_deliveries.png


And of course coal and some ag products are down on rail transport, but higher use of natural gas is *very* far from the only reason.

 
At 6/13/2012 11:09 AM, Blogger bart said...

Please cite evidence that disputes this case, to support your cherry picking "spin".


The evidence is there. Your failure to look at the the full picture has nothing to do with me or what I stated - or the facts.

 
At 6/13/2012 11:31 AM, Blogger Eric H said...

"i think this may be more of a mismatch of car types than an overall cars issue."

Yes, but then what did they transport them with at the original 2007 levels? Is it lack of empty rail cars or lack of train movement (more to Bart's point)? If lack of empty rail cars, what happened to them?

With these spectacular auto inventory stuffing stats (not sales), how is Bob Corker's "good deal for the American People" $26 BILLION loss on GM looking?

 
At 6/13/2012 11:54 AM, Blogger morganovich said...

"Yes, but then what did they transport them with at the original 2007 levels?"

that's a good question and i'm not sure on the answer.

it does seem that we had the capacity to ship more cars than this just a few years ago.

however, intermodal as a whole is actually above the 2006 peak levels right now, so it may just be containers of things other than cars taking up space on the cars that can carry them.

http://4.bp.blogspot.com/-jfdpaYE2nvk/T9IlCHXD96I/AAAAAAAANtk/GbsL7HUvvPI/s1600/RailIntermodalMay2012.JPG

coal is down nearly 25% from 2008 and that is pulling overall cars down dramatically, but if no intermodal units (or loading unloading facilities) have been added since 2006, it seems plausible that such capacity could be tight.

 
At 6/13/2012 11:56 AM, Blogger Jon Murphy said...

With these spectacular auto inventory stuffing stats (not sales)...

I'm not so sure, Eric. Annual auto retail sales (light vehicles) in May totaled 13.5 million units. That's 10.2% higher than last year and the highest total since November 2008.

What's more, Sales over the past three months are up 13.2% year over year and May itself saw sales climb over 25% from May 2011. Light vehicle retail sales are recovering nicely (Source: Ward's Auto).

Also, assemblies are up due to exports. A relatively strong Yen has brought Japanese auto manufacturers to the US. They assemble the cars over here and then ship them to Korea, China, etc. They get a better exchange rate that way.

 
At 6/13/2012 12:22 PM, Blogger Unknown said...

@Eric H:

You spend too much time reading the propaganda out of Zerohedge. Seriously. That stuff is bad for your health, not to mention your knowledge.

Here are the actual facts, free of Zerohedge spin:

LINK
"U.S. dealers can be excused for wondering if and when their lots will ever again see a “normal” days’ supply of light vehicles, as a one-third decline in unit stock in May translated into a subpar 53 days’.

Only twice in the past 15 months – 67 days’ supply in January and 61 last November – has the LV tally been in the 60-70 days’ range traditionally thought to provide the best choice of models to consumers, while not saddling ..."

 
At 6/13/2012 12:54 PM, Blogger Eric H said...

"Unknown",

Are you claiming all these "daily inventories of vehicles awaiting shipment" are "sold" and further that they are all "light vehicles"?

Mark's referenced article says cars are outselling trucks, not that it has totally replaced them.

 
At 6/13/2012 1:26 PM, Blogger Unknown said...

No, I'm claiming the opposite. Inventories do not count as sales. Also, if we know from the one article that there's a backlog of cars sitting on factory parking lots awaiting delivery to dealers due to a shortage of rail cars, that jibes perfectly with the other article that inventories on *dealer* lots are low. So I don't see what your objection is.

 
At 6/13/2012 2:49 PM, Blogger Eric H said...

My objection is being forced into being a 25% stakeholder in bailed out Government Motors who still show a $26 Billion loss on our forced "investment".

If all is rosy and back to 2007 levels and the cars are selling off the lots such that we have "normal" inventories of (unsold) cars, where do you and I as the bailout providers stand? I.e., when do those Government Motors dividend checks start rolling in on our "investment"?

Or as Jon suggests, are they mostly being shipped overseas (along with the new GM work)?

 
At 6/13/2012 4:29 PM, Blogger VangelV said...

The railroads have a shortage of tri-level autoracks, now that cars are once again outselling trucks. But railroads need time to build these transports, and forecasters did not expect North American auto production to recover so quickly after the recession."

It is not as simple as you may think Mark.

....but far more importantly, and as we have been pointing out for a year now, the bulk of GM production does not ultimately lead to any sales, but merely more and more channel stuffing in the form of month end dealer inventory which in June just hit 605,000.


....Expect the broader media and Wall Street economists (and Joe LaVorgna) to completely ignore this data point as it roundly negates everything the propaganda machine has been spouting for months.

 
At 6/13/2012 4:44 PM, Blogger Unknown said...

Zerohedge ... so predictable. *shakes head, rolls eyes*

You can always tell the doom and gloom crowd because all they do is regurgitate the propaganda spewed by Zerohedge.

 
At 6/13/2012 4:56 PM, Blogger Mark J. Perry said...

Which nobody takes seriously....

 
At 6/13/2012 5:03 PM, Blogger Unknown said...

.. except for the gloom and doomers themselves.

 
At 6/13/2012 5:06 PM, Blogger Mark J. Perry said...

The gloom and doom is addictive for some, that's why it's called "pessimism porn."

The nattering nabobs of negativism, nit-picking and nay-saying.... No matter how large and significant the silver lining, they'll find a small, insignificant dark cloud there somewhere.

 
At 6/13/2012 5:52 PM, Blogger bart said...

This comment has been removed by the author.

 
At 6/13/2012 5:55 PM, Blogger bart said...

I've busted Krugman for lies and just plain bad and spun data *far* more than I've busted Zerohedge for the same.

My most recent Krugman smack down:

http://www.itulip.com/forums/showthread.php/22699-If-you-like-or-respect-Krugman-don-t-read-this

And yes, ZH has way more gloom & doom folk than almost anywhere else, especially in the comments from almost literal psychos and the dain bramaged - and ZH has also accurately predicted a huge amount of stuff... much like Marc Faber (although Faber has been much more accurate and for many many years), whose actual site is named gloom boom doom.

Sometimes I agree with the articles at ZH, more often I don't. The reverse of here.

 
At 6/13/2012 9:00 PM, Blogger VangelV said...

You can always tell the doom and gloom crowd because all they do is regurgitate the propaganda spewed by Zerohedge.

The data is not in dispute. GM is sitting on massive inventories at its dealers not only in the US but also in China and Europe.

And Zero Hedge is not the only source of analysis. In MNI we read, "Retail motor vehicle inventories jumped 1.9% in April as motor vehicle sales rose only 0.1% that month. That followed a 1.5% rise in retail motor vehicle inventories in March."

The big entry of investors in the sector may actually be good news and a sign that a nominal bottom is in place. But that still does not mean good news for all those people who are under water and expect to meet their previous retirement goals.

 
At 6/16/2012 7:29 PM, Blogger OBloodyHell said...

Is this increase in production actually associated with an increase in the sales rate, or is it due to some government tax dodge or other federal boondoggle? Or perhaps tied to some "You will take 'x' cars or we will take away your dealership" crap?

Because, frankly, I see little sign the economy has recovered enough to have the median car price go up substantially (another CD thread) AND a substantial increase in production, without lots and lots of excess unsold inventory winding up on the lots.

 
At 6/16/2012 7:50 PM, Blogger OBloodyHell said...

>>> I've busted Krugman for lies and just plain bad and spun data *far* more than I've busted Zerohedge for the same.

Um, bart, not to argue in tandem with anyone else about your beign a ZH fan and all, but that doesn't prove much, really. If anything, it bolsters their claim.

And as far as busting Krugman's chops, really...? That's like putting out a call for a dishonest politician. It's not like there's much work involved. Krugman's an example of how one can clearly know not even basic facts about your area of supposed expertise and still get a Nobel prize in it. Chu's recent backing of the ridiculous 118mpg "calculation" for the new electric vehicle shows a similar lack of basic understanding of physics.

Not sure which is more "interesting" -- That you can be so clueless about the basic precepts of your expertise and get a Nobel, or that Obama pretty much has two such idiots working for him.

 
At 6/16/2012 8:35 PM, Blogger bart said...

Spin, Span, Spun.

I also said "Sometimes I agree with the articles at ZH, more often I don't. The reverse of here."

If you're going to quote me, quote it all.




I also don't see you putting in the substantial time and effort to publicly and explicitly smack Krugman down, or trying to show his groupies just a few real and totally provable "contrary facts".
etc.

 

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