What does the semiconductor crisis mean for company car fleets?
A global chip shortage is disrupting new car and van deliveries, so what can fleets do to keep orders on track?
From phones to fridges, semiconductor chips have become a lynchpin of the way we live and work, and the automotive sector is taking an ever-larger share.
Today’s increasingly connected, electrified and autonomous vehicles are all hungry for that processing power – but at the moment, it’s in short supply.
*Why is there a semiconductor shortage?*
The problem has snowballed. Manufacturing took a hit at the start of the pandemic, as factories were shuttered without warning, then restarted with reduced staff and limited capacity. That’s a big problem for the automotive industry, which has a complex supply chain and tends to run light on stock.
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Semiconductor supply is particularly fragile. Cautious about durability and safety, car makers use what Intel’s CEO recently described as “legacy” technology compared with the consumer electronics sector, and only a handful of facilities make these chips.
Two were affected by severe storms in Texas last February, one in Japan caught fire in April, while summer droughts slowed production at another in Taiwan.
With the Semiconductor Industry Association claiming it takes six-months (and significant investment) to bring new facilities online, and the war in Ukraine affecting the supply of neon gas and palladium used during semiconductor production, these issues aren’t going away any time soon.
*How is the semiconductor shortage affecting fleets?*
Semiconductors are a component within a component, so it has taken a few months for the impact to come to light. At best it has meant dropping optional extras off price lists, at worst manufacturers have been closing factories to avoid ending up with lots full of unfinished cars. Estimates vary, but IHS Markit says that seven million fewer vehicles were built during the first three quarters of 2021.
Fleets, which rely on scheduled vehicle replacements, are facing some real headaches as a result, including:
*Delayed deliveries *Factory-ordered cars are now taking three to six months to deliver, while vans can take a year. The BVRLA, which represents the UK’s rental and leasing sector, says restricted supply had become its members’ number-one concern.
*Missing equipment* Some manufacturers are deleting previously-standard non-essential equipment to keep production going or are offering reduced model ranges. For example, only one version of the Volkswagen ID 3 is available in the UK at the moment.
*Unplanned expense* Fleets typically budget for specific lifecycles, and many are having to extend contracts to keep employees on the road. This can mean running vehicles beyond their warranty period, with the potential for expensive maintenance bills and disruptive downtime, especially for hard-working vans.
*Higher tax bills* The Association of Fleet Professionals (AFP) has noted ongoing issues for drivers waiting longer than expected electric or plug-in hybrid company cars. With new ultra-low company car tax bands for vehicles officially emitting 50g/km CO2 or less, the knock-on effect of delayed deliveries is excess benefit-in-kind and National Insurance payments.
*Used car demand *One of the few upshots is a very strong used market, as would-be new car buyers shop around to avoid long waiting times. Following a surge in values during summer 2021, auction prices have settled at around 12% higher than a year ago. That’s good news for fleets trading in end-of-term vehicles, but they could be waiting a while for a replacement.
*What can fleets do to minimise disruption?*
The consensus is that the shortage will continue for most of 2022, so it will be a while before the market returns to normal. If you’ve got vehicles due to be replaced within months, it’s worth getting that procurement process under way as soon as possible. This will give time to work out a Plan B if necessary (some leasing companies are letting customers extend contracts if deliveries are delayed).
It’s also important to assess which equipment is vital for drivers and don’t rush to take whatever is available. The Association of Fleet Professionals has warned operators to be wary of 'decontented' models that are missing safety equipment, as these could cause duty of care issues and affect future residual values.
There are also opportunities. Manufacturers are working towards strict average CO2 targets for new vehicles this year, so plug-in hybrids are a priority for them. With generous tax incentives introduced last year, accelerating your fleet’s electrification could be the appealing silver lining of a difficult period for the industry.
*Alex Grant*