Automotive Manufacturing Industry Affected by COVID-19 (Jim Blaze; Railroad Economist)

Jim Blaze Headshot (2)

During this COVID-19 crisis, automotive manufacturing facilities are being re-purposed to create ventilators, protection equipment, and other key medical supplies. Will we see a volume decrease in rail traffic and the trucking industry, and if so, what will that decrease be?

 

Allow me to set a perspective around the floor space conversion from auto and auto parts to ventilator and related medical equipment.
 
  1. It doesn't require a great deal of floor space use; and
  2. There is a great deal of competition announced over the past week from other manufacturers to meet the emergency requirements.
 
The more serious question is the loss of family unit and personal income that is at risk as the mandatory layoffs and stay at home regulations take hold. This will reduce overall US economy "discretionary income".   
 
Discretionary income is what a consumer -- or an organization -- has left after it satisfies all essential cash needs for food, shelter, heat, and other survival expenditures.
 
Buying new automobiles is NOT an essential purchase. 
 
When economic fear and survival purchasing instincts kick in -- auto purchases, vacations, and the like tend to get "delayed".
 
If you check other sources, you will find that over the past half month there have been multiple business experts suggesting that automobile sales will likely drop over the next one to three months. It could last longer. 
 
Based upon my years of watching similar recessions during my railroad career, I'm taking the downside view.
 
That means a drop is very likely in the movement of both finished autos in TTX bi-level and tri-level cars -- as is a drop in high cube boxcars of parts -- and a drop in primary metals for auto-body steel.
 
It's too early to call out the depth of the traffic drop. Too many unknowns about the lives at risk and the length of the employment disruption.
 
May I suggest, colleagues, that we pray for those on the hospital front line. And build as many ventilators as needed ASAP.
 
Auto sales and that kind of rail movement traffic might not return to normalcy under a worst-case scenario for up to a year, to a year and a half.
 
MEANWHILE back in Kokomo, Indiana  — General Motors and VENTEC announced around noontime EDT on Friday that within about 7 to 8 days that partnership will begin manufacturing both ventilators and masks — using nearly a thousand volunteer workers at that location. This suggests to our readers how fluid the markets are at responding to the virus crisis. 
 
Reliance upon Mexican plant sites for such changed production might not be as great as initially thought.
 
Cheers!
Jim