The Semi-Conductor Shortage

The coronavirus pandemic has had a huge, unprecedented impact on the entire globe, affecting pretty much everything we've said, done and thought since it swept across the world in early 2020.

Few industries have been left unaffected, with the automobile sector one of the worst hit, with showrooms closed for months, and secondhand dealerships and garages unable to sell cars for long periods.

And whilst other industries forced to close during the first lockdown last year are now seeing huge spikes in demand, there's a significant issue in the car industry that's hampering their route back to normality – the severe shortage of semiconductors; a key component in all computerised devices, including modern cars.

What is a semiconductor and why is it important?

A semiconductor (or microchip) is a key, foundational element of pretty much all modern devices, from smartphones, to computers, to cars.

As you can imagine, in the technologically advanced world we live in, semiconductors are absolutely everywhere, which means we've come to depend on them hugely for everything we do.

According to the New York Times, cars can easily have more than 3,000 semiconductors in it, which means huge reliance on them in terms of new vehicle production.

Why is there a shortage?

Just like the car industry, the semiconductor industry went through its own period of disruption as a result of the pandemic.

Factories were closed for periods of time, putting firms behind on production, and at the same time, the desire for electronic items grew dramatically, as populations bought more electronic gadgets and computers to enable more effective working from home, or to provide entertainment during enforced isolation.

Now that production is – by and large – back on track, the problem has now been solved.

Manufacturers nowface a huge backlog, and the biggest customers are first in the queue.

Unfortunately for car companies, they aren't included in that list.

While companies like Ford, Toyota and Jaguar Land Rover do buy a lot of semiconductors, the amount they consume pales in significance when compared to tech companies like Apple and Samsung.

For example, Toyota spends more on semiconductors than any other car manufacturer, with an annual bill of around $4 billion, while Apple spends more than $50 billion each year.

What impact is the semiconductor shortage having on vehicle production?

A considerable one.

In the UK, the production of the MINI ground to a halt for a number of days as a result of the shortage, while Jaguar Land Rover in the Midlands also had to stop production for the same reason.

Across the pond, Ford has also had to temporarily shut factories down while it waits for more chips to arrive.

The knock-on impact is obvious – manufacturers are unable to continue delivering cars at anything like the rate that they're used to, with production down considerably on a normal, pre-pandemic year.

As a result, people are being quoted longer and longer lead times on vehicles, playing havoc for fleet managers that rely on being able to order vehicles and have them delivered within weeks (or even months).

What should businesses be doing about the shortage?

Clearly, this is an issue for anyone who wants or needs a new car in the short to medium future, but it's of particular concern for those responsible for fleets, and those that depend on vehicles to keep their businesses running smoothly and profitably.

Here's what Denise Lane, Director at the Association of Fleet Professionals had to say about the shortage:

"This is an issue that has been rumbling in the background for some time but is now really starting to affect car and van production materially on a day-by-day, week-by-week basis.

"Some manufacturers have already sent out messages to fleets listing which models are likely to be in reduced supply and, for some operators, there are very clearly going to be potential problems with getting hold of the vehicles they need."

We've been having numerous conversations with customers in recent weeks to help them navigate this tricky time, and distilled some of our advice down to three key steps:

1. Understand exactly what the shortage means for you

Get a clear picture of exactly what's going on, and how it will affect you. There aren't shortages on all vehicles, so understanding whether the vehicles you're going to need are affected is the place to start.

The way to do that is to talk to a company that knows what's going on in the industry, who can advise you about the kinds of lead times you can expect on different vehicles.

We're talking to manufacturers all the time, and have a strong handle on the changing situation – if you want to talk to us about the state of play, with no obligation, then we'd be more than happy to help.

2. Start thinking longer-term

As I write, the lead-time on a new Ford Transit van is close to 12 months. That's a very long time in anyone's book, and hundreds of other models are similarly delayed.

It might be that your lease agreement doesn't run out for 6-12 months, but we'd strongly recommend that if you're going to have a need for a new vehicle in the next year, you start talking to your provider now – this will give you the best chance of mitigating any impact the shortage has on you.

3. Consider other options

The reality is that some fleets will physically not be able to get vehicles by the time they need them, and that's where it's vital to consider contingency plans.

Once again, the clearer you are on how this will affect you, the better your chances, and the more options you'll have available to you.

Clearly one option is to consider other models with a smaller lead-time, which may well work for some companies, while there are a couple of other potential routes, including extending your leasing agreement.

It's also worth bearing in mind that short and medium hire is also an option – if you need a vehicle to bridge a gap, a company like ours has the flexibility to provide you with a short-term vehicle that'll allow you to get on with business whilst waiting for your next model.

How long will this go on for?

I wish I could tell you that this is a storm in a teacup, and that it'll be all over in a matter of weeks, but rather like the pandemic itself, that's just not the case.

While semiconductor production has – by and large – returned to normal, there is still a huge backlog, and with car companies firmly second in line behind the big tech guys, it's likely that the problems will persist for the foreseeable future, certainly for the next two quarters, and probably until at least the end of 2021.

And of course, as the world continues to recover from the pandemic, and life goes back to something close to normal, economic activity will also continue to pick up, placing further burden on the semiconductor manufacturers.

The simple reality is that this will not be over anytime soon, and if you want your fleet to run safely and smoothly over the next couple of years, it's vital you address the issue head on, and take steps to nullify it.

Your free consultation

Whether you're a Concept customer or not, we'd be delighted to spend some time with you, on the phone or on Zoom to talk through your operation, identify any areas where you might struggle for supply and help you create a plan to overcome these issues.

If you'd like to take advantage of that offer, you can do by clicking here or giving us a call on 08000432050.