Stock shortages have become the norm the past few years, but the more recent ‘chip’ shortage has the automotive industry reeling, which directly affects the fleet industry.
By now, everyone in the fleet and automotive industry is aware of the global chip shortage that is causing massive delays in vehicle production. These integrated circuits/semiconductor chips are used in hundreds of consumer products from video game consoles to cars. The shortage means many industries are competing for a limited supply of these chips, with the automotive industry being one of the worst affected.
Why is there a shortage?
The truth is that the increased use of technology in all aspects of our lives was already putting strain on the supply of these chips even before COVID-19.
According to TechRepublic:
A shortage in the supply of semiconductors first hit the automotive industry during the COVID-19 pandemic and has had a cascading effect, causing global disruption. The shortage can be traced back to the first half of 2020, when overall consumer demand for cars declined during the lockdown. This forced chip manufacturers to shift their focus to other areas, such as computer equipment and mobile devices, which spiked in demand with more people working remotely.
As 5G and cloud-based services grew, more chips were needed for communication platforms like Zoom and video streaming services.
Part of the problem is that the return on investment isn't compelling enough to build new foundries—which cost billions of dollars and take years to construct—to satisfy the demand by automakers, according to IDC. Automakers operate in a just-in-time environment without business continuity planning, according to Mario Morales, program vice president of the semiconductor group at IDC.
So the shortage we are currently experiencing has actually been building for a while, it was simply amplified by COVID-19.
Why do vehicles need these chips?
All modern vehicles use semiconductor chips in systems such as battery management, cruise control, infotainment systems, hands-free systems and all other advanced systems from lane-change assistance to autonomous braking.
This means that all vehicles are affected as even entry-level cars come with sophisticated engine monitoring systems and radios that require these chips. This means that no car can get off the production line if the factory has run out of chips entirely.
There is light in the distance
The combination of higher demand at the exact same time that COVID-19 brought nearly all global manufacturing and trade to a halt has, obviously, had a big impact. Chip manufacturers are slowly making up the backlog, but it is expected that the chip shortage will have a lingering impact for at least another two years.
According to TechRepublic:
Despite a reluctance by some manufacturers to build new plants, there has been momentum. Intel said it will spend $20 billion to build two new fabs in Arizona, and TSMC plans to spend $28 billion on new chips and building plants to increase capacity.
What the fleet experts are doing
With all fleets being different, the good news is that there are options. Fleet managers and fleet companies are working with clients to see which solutions will be best for each fleet. A few examples are:
- Delaying defleets/vehicle replacements and restructuring lease and maintenance agreements to accommodate a longer-term for current vehicles.
- Where replacement is crucial, the options are to choose from vehicles that are currently available/on the way, even if these might not have been your first choice. This reduces the risk of downtime, and these vehicles can be replaced as soon as the ‘right’ vehicles become available. In such cases, many clients are opting to lease rather than buy.
Although the global chip shortage has had a massive impact on the fleet industry, the good news is that supply hasn’t halted completely. So vehicles are still exiting the factory doors and making their way to us, but just not as quickly as we’d like. As manufacturing is ramped up and global trade backlogs are cleared, the chips shortage will slowly ease.
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