In April, the auto industry was bracing for disaster. As the coronavirus spread, car sales plunged, and automakers shut down plants. In recent months, automakers and automotive logistics companies have been able to breathe a little easier. Automotive production has resumed, and factories are now back above production levels that prevailed pre-COVID.

More importantly, vehicle sales have picked up more quickly than many industry executives expected. Vehicle sales are expected to fall roughly 20% year-over-year in 2020 (Motor Intelligence). However, given the economic backdrop of 30 million Americans on unemployment benefits and a double-digit unemployment rate, that number is encouraging.

The rebound has occurred in part due to the pent-up demand from the high-flying pre-COVID consumer economy. Many were forced to put purchases on hold due to personal financial uncertainty while others simply couldn’t find a dealership open or the model they desired. Fortunately, some have come back. Automakers have lured potential buyers back to dealerships with generous financing options like longer-term loans.

The recent surge in production above pre-COVID levels comes as a result of the rebound in sales. Inventories dwindled over the summer months because so few cars were produced in America. In April, while factories across the country were shut down, only 1,700 vehicles were produced compared to 204,000 during the same time last year. The data is even more staggering when aggregating all North American production: 4,840 vehicles were produced in April 2020 compared to 1.5 million during the same month in 2019.

The North American automotive industry is as intertwined between the three nations as any other industry. The fact that the U.S. and Mexico have been at different stages of their respective COVID-19 battles has proven challenging for the industry, not only when it comes to ramping up production, but also procurement and planning.

“The massive jolt that the automotive logistics industry has endured was due, in part, to the difficulty that automakers had in planning materials and parts movement,” said Jordan Dewart, Managing Director for Redwood Mexico. “The Mexican plants shut down in April and did not come back fully until June. During this time, raw materials and parts kept flowing into Mexican plants, creating inventory surpluses that kept freight moving inbound even before demand recovered.”

“Unlike the rail demand for automotive parts and vehicles, truckload volumes have rebounded to more than surpass pre-COVID levels,” said Dewart. “This is in line with retail sales of motor vehicles and parts from the Commerce Department. “The current environment is akin to a natural disaster, but unlike those hectic, short-term volume surges, this one has persisted for months and has led right into the holiday season.”

These insights are available via a full report, accessed here: https://www.redwoodlogistics.com/automotive-shipping-and-the-impacts-of-covid-19/

While the industry is more optimistic than anticipated, there are still potential headwinds. The University of Michigan consumer sentiment index and the consumer confidence index from the Conference Board are both at 6-year lows. According to the University of Michigan, consumers provided no indication that they expect the recession to end anytime soon.

The third-quarter GDP was certainly an improvement, to say the least, from the record-setting second-quarter collapse. GDP increased 33% according to the estimate published by the Bureau of Economic Analysis. This surge in value can be largely attributed to the continual reopening of businesses across the country, and increases in personal consumption expenditures (PCE), where motor vehicles and parts led for goods sold. In addition, exports were also led by automotive vehicles, engines, and parts.

Shipping costs have jumped two spots since the beginning of the pandemic and are now the most significant risk to automotive supply chains for the rest of the year— and for good reason: spot rates have surged off of the early-May bottom to reach $2.95/mile on a national level. Carriers can essentially auction capacity at this point. National spot rates are running up nearly 30% year-over-year, and 46 of the 100 lane pairings from Truckstop.com in SONAR have rates upward of $3/mile.

“COVID-19 and 2020 have presented a plethora of unique challenges to the automotive market including demand fluctuations, supply disruptions, capacity shortages and elevated rates. The industry has endured everything from the most violent demand swings in history to load-to-truck ratios north of 50:1 at the border and COVID outbreaks. All considered, the industry is holding up better than expected—many consumer durable segments have benefited from a lack of service availability, and the automotive industry is no different, but the increased demand comes with a caveat of spot prices running up 30% year-over-year,” said Dewart. “We expect the environment to continue being very difficult for shippers and brokers in this segment through the end of the year. There is not much data pointing toward a material slowdown in demand, and there is nothing that lends us to believe capacity will loosen, especially at the border. The hope for capacity is that holiday demand of U.S. goods into Mexico could rebalance the network, but nothing is guaranteed. And the headwind for demand is poor consumer sentiment, but unconfident consumers have led the rebound thus far.”

“Given all these factors and the uncertainty that the entire industry is currently experiencing, it is incumbent upon shippers to seek out tools and partners that can help them alleviate these challenges and more successfully and effectively plan for the future.”