New car supply has been severely limited since the start of the pandemic due to a shortage of semiconductors. How longwillthis go on and what other factors are likely to impact supply? CBVC’s Managing Director, Mike Manners (pictured), helps discuss the issues.
When the pandemic struck two years ago, new car supply and then sales plummeted not just because of the various lockdowns in the UK which meant showrooms were closed, but also because of shutdowns in other parts of the world where car components are manufactured.
When the UK reopened and demand for cars and vans ramped back up, shortages of certain components – most notably the semiconductors used in microchips – meant that production couldn’t keep up with demand.
To make matters worse for anyone wanting to build or buy a car, when production was able to restart in the semiconductor factories the majority didn’t prioritise chips for cars. Vehicles use low-cost, low-margin chips and the global automotive industry isn’t the biggest buyer of semiconductors so the car manufacturers went to the back of the queue.
The impact of this is still being felt today, although supply is beginning to ease as new semiconductor factories come online.
With a shortage of components, car makers complicated matters for car buyers by prioritising which cars were built and which were not.
Manufacturer impact is variable
For sound and obvious business reasons, manufacturers prioritised the vehicles that made the most money and those that were needed to meet emissions targets around the world. It also meant some brands de-specified certain models, taking out specific technology that required microchips, so that they could be built.
Typically, that meant EVs were being built (to meet emissions regulations), although still not at a rate fast enough to meet demand, plus some more expensive models. Interestingly, some vans, which use fewer chips but also have a greater profit margin, were also prioritised.
Not every manufacturer and brand has suffered in the same way.
The Korean brands Kia and Hyundai have recovered far quicker than the majority of brands thanks to having a close relationship with their local semiconductor suppliers. As a result, the waiting time for even their most in-demand models including the Hyundai Ioniq 5, Hyundai Santa Fe, Kia EV6 and Kia Sorento are still around the six month mark.
Tesla too has good supply thanks to using one main, high power microchip to run lots of functions (rather than lots of low-cost chips that each run their own function – which is how most other makers build their cars).
New factors: the war in Ukraine
While semiconductor production is now starting to normalise, with experts predicting supply to be back to near pre-pandemic levels by the end of the year, there is still an order backlog.
Before the pandemic, the UK registered around 2.3 million new cars a year. In 2020 and 2021, this figure was closer to 1.6m, meaning a shortfall of well over 1m new cars.
This has boosted residual values, but it also means a lot of company car drivers have vehicles on order that have yet to arrive.
Mike Manners, Managing Director of CBVC, explained:
Everyone is in the same boat with vehicle supply. There are long lead times on the majority of cars that have any business appeal. All UK leasing suppliers have similar issues trying to get stock from manufacturers.
Vehicle availability is extremely difficult at the moment and will continue that way in the short to medium term.
Mike also highlights new supply issues due to the war in Ukraine and sanctions on the Russian economy.
While the semiconductor shortage looks like it would have been eased over the course of this year, Reuters has reported the shortage could continue because Ukraine is one of the largest producers of neon, a gas used by lasers which make microchips.
Furthermore, many of the German premium brands, including BMW, Audi and Mercedes, have closed plants in Ukraine which produced wiring harnesses. These harnesses provide structure for the extraordinary number of wires in a car, often over three miles in length.
Other raw materials face shortages, too, with nickel for electric vehicle batteries sourced from Russia as well as palladium for catalytic convertors.
Supply solutions
Mike offered several tips to beat the delays:
If businesses find themselves facing delays they can consider switching make and model. While there are long waiting times for a large number of cars, the delays are often model- or even brand-specific. We can help you think about alternative models that are available or potential stock vehicles we have secured.
EVs are, obviously, in great demand within fleets thanks to the move to more sustainable motoring and the attractive benefit-in-kind position. However, PHEVs are also attractive from a taxation point of view and can be in better supply. But don’t put off the decision – it’s important to get in the queue.
Another option is to consider a lease extension to bridge the gap while your new car is on order. These can be arranged by our lease executives, although you should also consider what this means in terms of additional maintenance if you do not have that included as part of your lease.
One final point companies should consider, due to the shortage of rental vehicles and increased costs, is entering an extension of an end of lease vehicle for a further six or 12 months, and using it as a pool car/van. Provided there are no major potential out of contract maintenance issues, this is a cost-effective method of controlling costs while providing essential transport for employees and Duty of Care cover. As ever, talk to us about your options..
Help with vehicle availability
If you want to discuss strategies to overcome lack of vehicles, please call us on 01283 351200or email sales@cbvc.co.uk.
