As your lease contract is coming to an end, you of course begin to think about your next vehicle. And with more choice than ever of electric and hybrid vehicles, you may be thinking about broadening your options. However, once you have made your decision and proceed to order, you will more than likely have been met with an exceptionally long lead time or no exact delivery date at all. But why?
The fundamental reason is down to a semiconductor shortage. It’s a global challenge that is not only affecting the automotive industry, but most technology products.
What are semiconductors?
Semiconductors are computer chips. They are very small components yet extremely essential in many of our technology products such as cars, washing machines, smartphones, computers and games consoles.
In modern cars, semiconductors are used within the complex electronics from engine management to parking cameras. Some manufacturers have tried to find solutions around this, such as Vauxhall suggesting it would replace digital speedometers with more traditional analogue versions in one of its Peugeot models if the crisis continues. However, this will not be possible for all vehicles, especially if they want to sell more advanced feature options.
And it’s not just ICE vehicles being affected. Electric and plug-in cars are being impacted by the shortage too. As well as the components inside the vehicle, the charging units themselves also require semiconductors. Given the fast-approaching deadlines to seize production of ICE vehicles by 2035, it’s certainly been a knock for vehicle manufacturers wanting to meet targets.
Why is there a shortage?
There have been a number of factors in play that has led to the global shortage. To start, the rise in 5G technology increased technology demand. The US then prevented the sale of semiconductors to Huawei, meaning chip makers outside of the US were then in high demand. Manufacturing plants in Texas and Japan were also closed due to natural disasters – again putting further pressure on the other manufacturers globally.
And then there was the Covid-19 pandemic. While it certainly didn’t cause the shortage, it accelerated an issue that was already at breaking point. The lockdowns and working from home led to more people requiring additional technology such as laptops, tablets and webcams; so demand for products using semiconductors was high. However, most manufacturing plants were closed during some of the lockdowns, meaning the supply could not meet demand.
The pandemic also led to some stockpiling and advanced ordering from product manufacturers, leaving others without. Furthermore, there have been logistics problems exacerbating the situation. The cost of shipping containers around the world has skyrocketed due to sudden shifts in demand during the pandemic. There has been a rise in freight fees as well as the lorry driver shortage across Europe. All of these issues combined have created a global shortage that is having a knock-on effect on the output of products, including new vehicles.
How will this impact my fleet?
One of the biggest issues that is impacting fleets currently is the gap between end of contract and delivery of a new vehicle. Manufacturers have slowed, and in some cases halted, production of new vehicles, and have been vague in providing delivery lead times – many stating Q1 2022, but not committing to any exact dates.
Another problem that may incur down the line, is the repair of certain parts on current lease vehicles. While this is not a major issue at the moment, some aftermarket parts that include semiconductors may also be affected. But that’s a conversation for another day!
What can JCT600 VLS do to help?
While we cannot do anything to solve the global semiconductor crisis or hurry up delivery times, we are doing everything we can to make it as stress-free as possible. One area, in particular, is communicating with our customers throughout. We are keeping conversations going, from ensuring customers are up-to-date on lead times as and when we know, to contacting customers earlier than usual to see if they want to bring forward renewals in anticipation of longer lead times.
We have maintained regular contact with our daily rental providers so we can keep up with demand. And where customers’ leases have expired and they are awaiting delivery of a new vehicle, we have provided two types of extensions – informal and formal, to meet different customers’ requirements.
An informal extension is where a vehicle goes beyond its original contract term and tends to be utilised when there has been a delay in ordering or supplying a replacement vehicle, or a company deploys the vehicle for a couple of weeks/months instead of ordering a more costly hire vehicle. When a vehicle goes into an informal extension, we continue to bill you for the vehicle but based on the number of days use, and for every day you use you accrue additional ‘contract’ mileage. This means you are not forced into fixed monthly billing cycles/extensions, and this gives you all the flexibility you need. That said, as informal extensions are billed at the same monthly rate (which accounts for the depreciation from new over the term) these should only be used for flexibility and ‘plugging gaps’ as they can prove costly if used for long periods of time.
A formal extension is usually used when a company is delaying decisions on replacing vehicles or to maximise the ‘usable life of a vehicle’ if low mileage has been carried out. On request of a formal extension, we provide a quote to recontract the vehicle to a new contract end date and often a different contract mileage. This means that we set a new RV and new rentals are calculated accordingly. The customer, more often than not, sees a reduction in their monthly payments as they are benefitting from the lower amount of depreciation in the extension period.
What next?
There may be some time until the semiconductor shortage is solved, and we are back to normal production of new vehicles. Preparing earlier than usual for contract renewals may help manage your fleet in the short term. However, do not worry if your contracts are almost at the end, our team is on hand to provide solutions where we can and guide you through your best options.