How the Rail Car Shortage is Impacting the Car Industry

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After years of supply chain disruptions, a new issue is holding back automotive dealers: a rail car shortage. Previously, a shortage of microchips led to production issues and a slowdown in the number of cars available to automotive dealers. At the same time, other supply chain issues led to problems with vehicle components that also caused new vehicle prices to spike over the last two years.

While those problems are beginning to resolve, many auto manufacturers now can't ship vehicles due to a shortage of rail cars across the network. As many as 70,000 stranded vehicles sit at factories and ports due to this problem, impacting the auto industry at every level¹.

What Is Causing the Rail Car Shortage?

The issue is due to a lack of rolling stock. Distributors can't simply move those cars on a conventional flatbed and instead rely on specialized carriages known as “auto racks” to transport vehicles. They have two or three decks and can carry up to 20 vehicles at a time. The design is optimized so the carriages can move as many vehicles as possible while protecting them from damage during the journey². These racks have unique metal sides that protect the vehicles, and they've become a key component within the automotive industry supply chain.

Put simply, the rail network does not have enough of these special transporters and has failed to equip the system for several reasons:

The industry was unprepared for the quick rebound as pandemic-era problems waned and microchips became more readily available. Auto manufacturers ramped up quickly and caught the rail industry on the hop.
Larger vehicles and SUVs occupy more space on each carriage and require at least a three-deck auto rack. There are fewer of this type available compared to the entire rack rolling stock. A shift in consumer demand has led to increased production of these heavier vehicles, aggravating the problem.
As the electric vehicle revolution progresses, more people are ordering EVs, which tend to be heavier than their internal combustion engine (ICE) alternatives. The added weight means manufacturers can't load as many vehicles onto an auto rack.
The rail industry is struggling to deal with the amount of goods due to a booming e-commerce sector and has also faced logistic disruptions caused by adverse weather conditions.

The biggest challenge may be the lack of this specialist rolling stock. The system could take time to return to normal, as it can take up to 3 years to manufacture new auto racks¹.

Who Is Impacted by the Shortage?

These developments certainly impact vehicle manufacturers. They can't move cars, trucks, and SUVs from factories to dealerships. The earlier supply chain problems have worsened the situation, as they caused changes to ports of entry and manufacturing bases. This extra issue means many products destined for the East Coast may now be on the West Coast and vice versa. Due to the ongoing rail car shortage, the industry can't move them as easily as it would like.

Likewise, dealerships are under pressure. The issue is causing a slowdown in turnover as dealers can't get the stock into the showroom and available for purchase. This is a big concern for consumers looking to purchase as soon as possible. They may decide to shop around, and if successful, this can sometimes lead to the loss of a long-term customer. Alternatively, the buyer may choose not to purchase at all.

The problem may become even worse as manufacturers start to reduce production schedules. Ford Motor Company plans to slow production by at least 50,000 vehicles, with a trickle-down effect on dealers and other suppliers³.

What’s the Solution?

At the OEM level, manufacturers are trying to optimize their production schedules where possible and bringing in contingency plans to minimize disruption. They’re striving to keep in touch with dealerships, suppliers, and other parties to keep abreast of production and shipping delays.

Importantly, they’re also looking at alternative transportation methods. Road transport is a piece of the puzzle already, as it’s responsible for moving the vehicles from rail yards to the dealer lots. However, due to the shortage of rail cars, OEMs may have no choice but to think about more extensive over-the-road (OTR) transport options.

Still, it’s not easy to switch over to road transport as 75% of the new cars sold in the U.S. take the train toward their dealership destination in a typical year². It’s likely to be challenging to substitute road transporters for the entire rail network due to sheer volume and logistical availability.

Any switch to OTR could also face another hurdle due to a significant shortage of qualified drivers: 70% of freight already moves on U.S. highways, and there’s an increasing demand for truck drivers anyway due to the e-commerce boom. Currently, the industry is short of about 50,000 drivers, and some predict this shortage could increase to 330,000 by 2024⁴.

How Can Dealerships Mitigate the Damage?

Dealers can take advantage of software systems that offer real-time tracking and automated inventory management. These tools allow the dealer to track inventory on its journey from the factory to try and mitigate delays.

To keep lots full during disruptions, dealers can also keep in close touch with nationwide auction sites that allow them to research preowned vehicles online as efficiently as possible. For example, ACV Auctions is the country’s leading online car auction for dealers, with the most up-to-date wholesale pricing in the market that relies on real-time data.

Predictive analytics technology can also help dealerships anticipate supply chain disruptions to potentially mitigate some of the impact caused by the rail car shortage. Dealers can use this predictive analytics technology to help them acquire “in demand” used vehicles. Some of these tools can identify possible trade-in and buyback opportunities before the customer returns to the market, using data the dealer already possesses.

How Else Can ACV Help?

ACV Auctions is not only the country’s leading online auction for dealers, but it also has a dedicated transportation solution that handles the entire process from start to finish. We have over 5,000 active, safe, and reliable carriers on our nationwide network, backed by competitive pricing. Dealers will be able to see real-time prices in the ACV app and get real-time movement updates. ACV also commits to delivering the vehicle safely and efficiently within industry standard timeframes and has a dedicated team on hand to provide personal service for each dealer client.

Register with ACV Auctions today and benefit from our seamless vehicle delivery system.