Rail lockout threatens inventory levels, puts dealers on edge

A work stoppage at Canada’s two biggest railroads will impact new-vehicle inventory within two weeks if the two companies and the union representing affecting workers can’t be reached, industry analysts say.

That has some new-vehicle dealers calling for government intervention.

Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. (CPKC) locked out 10,000 engineers, conductors and dispatchers after the rail companies and the Teamsters Canada Rail Conference disagreed on a new contract before a 12 a.m. ET deadline on Aug. 22.

Consumers who want to buy a new vehicle in Canada and the United States could start to see spot shortages in about 14 days.

That’s because General Motors, Stellantis, Ford, Honda and Toyota either assemble entire vehicles in Canada or ship engines and other components across the border. About 80 per cent of vehicles put together in Canada are shipped to the U.S., largely by rail.

Michael Robinet, executive director at S&P Global Mobility, notes that most auto assembly plants operate on “just-in-time” inventories of parts — making it difficult to stockpile farther out.

Automakers could try to divert vehicles built overseas to U.S. ports, or ship parts over the border by truck, but capacity is limited, Robinet added.

The New Car Dealers Association of B.C. is already on edge.

“New vehicle inventories are already fairly tight for various manufacturers and dealers and a rail strike has the potential to effectively turn the tap off,” NCDA CEO Blair Qualey said in a statement. “It means that consumers who have ordered vehicles or dealers who are in the process of ordering vehicles won’t be seeing them anytime soon – and as inventories are sold or delivered, they won’t be replenished.”

Canadian National's website said it handles more than 2 million finished vehicles on an annual basis, catering to over 12 North American vehicle assembly plants. The U.S. imported and exported with Canada in 2023 transportation equipment worth about US $73 billion, according to the U.S. International Trade Administration.

Meanwhile, CPKC caters to about 90 per cent of automotive assembly plants in Mexico, it said on its website. Some of those vehicles are destine for the U.S. and Canada.

“The same challenges extend to consumers in need of vehicle repairs or servicing, as access to parts would also be impacted by a rail service stoppage,” Qualey said.

Inventory levels in Canada continue to improve with the global microchip shortage now behind the industry, but they are still well below levels seen before the COVID-19 pandemic.

J.D. Power Canada Director of Customer Success for the Data and Analytics Division Robert Karwel said inventory currently varies brand by brand. The number of days to turn is “pretty good” at 51 — meaning a new vehicle sits, on average, on a dealer lot for 51 days before it’s sold. Two years ago, that number was 25 days. Last year, it was 38. Prior to the pandemic, that number was at about 65 days.

Qualey warns dealers will be “hard-pressed to keep their doors open and the lights on” if the lockout continues for weeks.

“An extended rail service disruption also has potential consequences with respect to provincial zero-emission vehicle mandated sales targets,” Qualey added. “Simply put, if dealers  don’t have vehicles to sell to consumers, they will be unable to meet mandated targets and that becomes a vicious cycle.”

Qualey is asking the federal government to intervene.

“BC’s New Car Dealers are among a coalition of business groups and associations across the country that have been calling on  the federal government to prevent a rail service disruption,” he said. “Now, with a work stoppage underway, we are urging Ottawa to take steps that will restore this vital service.

“Previous disputes have had a significant impact on dealers and consumers, and we simply cannot afford a repeat.”

Canada was stung by a 13-day strike in July of 2023 when 7,400 port workers froze up to $10 billion of trade in Vancouver.

Prime Minister Justin Trudeau declined to immediately force the parties into binding arbitration, out of fear of offending the Teamsters Canada Rail Conference and other unions.

But that could change.

“We are not taking this lightly because Canadians across the country are worried about it," Trudeau told reporters in Sherbrooke, Quebec, Thursday. He added that “we will have more to say" shortly on finding a solution.

— The Canadian Press contributed to this report.