General Motors Corp. (GM) chairman & CEO Rick Wagoner’s aim to “achieve full capacity utilization” by closing assembly and component plants over the next few years will impact trucking companies that rely on auto freight.
“With the plant closing and idling announcements in North America in the recent months, we’ll have reduced our annual assembly capacity from six million units in 2002 to five million units by the end of this year,” said Wagoner in an annual address to stockholders.
So far GM has made no announcements as to which specific plants it intends to shut down. A GM representative pointed out that the announcement doesn’t necessarily mean there will be a downturn in production. But cutbacks on the manufacturing side for the world’s largest automaker have been a reality for the past two decades, say industry analysts.
Truckload carrier Contract Freight Inc. (CFI), which in the early ‘90s drew 40% of its business directly from the Big Three automakers (GM, Ford and Chrysler), today gets less than 1% from the car giants, Herb Schmidt, CFI president told Fleet Owner.
“The signs were there to stimulate us to diversify into other areas— signs like when they stretch you out, don’t pay quickly, and when there are more provisions for penalties in the contract,” Schmidt said.
And for carriers that do contract directly with the Big Three, there will be rough times ahead.
“To meet your large customer’s needs, if they have a great demand out of a specific area, you’d have to be aggressive competing with other carriers,” said Schmidt. “To attain that inbound business, you have to funnel enough equipment to serve that customer’s needs.
“But if there’s a change in their needs, there will be an oversupply [of trucking capacity],” Schmidt continued. “It’d be tough to get the inbound rates to go up to make up for the discounted outbound rates— as much as a few years. For that particular time you won’t make money on a certain percentage of those trucks and you have to hope you have enough diversity in your customer base to carry you through that period.”
“There may be a shake-out of trucking companies that service the Big Three,” Walter Heinritzi, executive director of the Michigan Trucking Assn. told Fleet Owner. “Whether that [auto freight] will be made up by competitors or have a negative overall impact on suppliers specifically for trucking remains to be seen. But nationally, if (auto) demand stays the same, that will shift auto freight over to other trucking companies.”
As far as freight goes, haulers of parts specific to GM models may be vulnerable in the years ahead. “It’s a concern for a supplier if they supply for a certain model and [GM] decides to cut that model out of their lineup.” Chris Brady, president of Commercial Motor Vehicle Consulting, told Fleet Owner.
“I think for those carriers that haul for GM or related production it is obviously disappointing news,” ATA chief economist Bob Costello told Fleet Owner. “But the auto companies have been going gangbusters for a long time now and the market was probably saturated. Although we don’t anticipate a big drop in autos, we do expect it to level off.”