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Railroads benefiting from auto growth

Keywords: Tags  railroads, automotive production, Union Pacific, Eric Butler, Kansas City Southern, David Starling, Pat Ottensmeyer, Norfok Southern Don Seale

CHICAGO — North American railroads say they are seeing the benefits of increased shipments of motor vehicles and auto parts and are preparing to service new factories in Mexico as they look to take advantage of the automotive sector’s growth.

"The growth rate of the automotive industry continued to outpace that of the overall economy during the first quarter," Eric L. Butler, executive vice president of marketing and sales for Union Pacific Railroad Co., said during the company’s recent first-quarter earnings call.

According to Butler, the company’s automotive volume grew 2 percent in the quarter, which combined with an 11-percent increase in average revenue per car drove a 13-percent rise in the railway’s total revenue. The steady pace of total auto sales in the first quarter "is expected to continue throughout the year, which combined with declining dealer inventories, should be good news for our automotive business," Butler added.

Kansas City Southern’s Mexican subsidiary is also seeing the benefits of automotive exposure, as the company has been shipping Asian vehicles landing at Mexico’s Port of Lázaro Cardeñas, executive vice president of sales and marketing Patrick J. Ottensmeyer said on the company’s own first-quarter call.

"We think we’re going to get growth in parts, in steel," he said. "We’re already seeing it (with) steel plants that are being built in Mexico to serve the new auto plants."

KCS expects to see "unprecedented" growth as automakers Honda Motor Co. Ltd., Nissan Motor Co. Ltd. and Mazda Motor Corp. open new plants in Mexico, followed by Audi AG and more in 2015, company president and chief executive officer David L. Starling said. "No railroad has ever before experienced the opening of multiple new plants over a five-year period, to say nothing of the expansion of the existing ones."

"A large number of Tier I and Tier II suppliers are going in to support these plants," Ottensmeyer added. On a recent tour near the Honda and Mazda factories, he said he saw "eight or nine buildings going up simultaneously. So the ripple effect is pretty big."

Finished vehicle output at the new Mexican assembly operations will represent a 35-percent increase in Mexico’s auto production, Ottensmeyer noted. Eighty percent of those vehicles will be exported, mostly to the United States and Canada.

"Laredo (Texas, where KCS has a terminal) is the best gateway to move these vehicles to where they ultimately want to go," he added. KCS will also ship parts to those factories from the Great Lakes region and from Asia, he said.

Norfolk Southern Corp. will also look to capitalize on new vehicle capacity being built in North America. "We also expect to benefit from new production that is moving from Japan and from Europe to the U.S., where the U.S. is being used as a manufacturing platform for both the domestic U.S. market, as well as the export market abroad," chief marketing officer and executive vice president Donald W. Seale said during a recent earnings call.

"Toyota (Motor Corp.) just announced they’re moving the ES300 Lexus production from Japan to Georgetown, Ky. We serve Toyota at Georgetown, so that will be a source of growth ahead," Seale said. "We continue to have dialogue with other manufacturers with respect to potential new auto plant locations."

"We’ve got some major expansions with our current automotive production base and more is coming from abroad," Seale added, citing expansion plans for BMW AG in Greenville, S.C.; Mercedes-Benz U.S. International Inc. in Vance, Ala.; and Honda in Lincoln, Ala.

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