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[NEWS] What does the semiconductor crisis mean for company car fleets?

What does the semiconductor crisis mean for company car fleets?

dealers 568

A global shortage of semiconductor chips 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 and, 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 re-started with reduced staff and limited capacity. That’s a big problem for the automotive industry, which has a complex supply chain and tends to be light on stock.

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Semiconductor supply is particularly fragile. Cautious about durability and safety, carmakers are using what Intel’s CEO recently described as “legacy” technology compared to the consumer electronics sector, and only a handful of facilities make those chips. Two of them were affected by severe storms in Texas in February 2020, a Japanese factory caught fire in April of the same year, and severe droughts in Taiwan have affected another. With the Semiconductor Industry Association claiming it takes six-months (and significant investment) to set up a new production line, there’s no quick fix. 

How is the semiconductor shortage affecting fleets?

Semiconductors are a component within a component, so it’s taken a few months for the impact to come to light. At best it’s 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 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 orders 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. Ford, for example, recently launched pared-back ‘Design’ editions of the Puma SUV with fewer chips and shorter lead times.

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 at 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. BCA reported its fourth consecutive month of record used car values in September, while average van prices are up by a quarter compared to 12 months ago. 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 shortages will continue well into next year, so it’ll 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 underway 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 “de-contented” models which are missing safety equipment, adding that these could cause duty of care issues and affect future residual values too. 

There are also opportunities. Manufacturers are working towards strict average CO2 targets for new vehicles this year, so plug-ins are a priority. 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

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