Auto Rental News recently reported that car rental companies are feeling the effects of a global shortage of semiconductors.
OEM representatives have informed licensees to expect significant delays for certain vehicles, particularly for trucks and SUVs. One licensee shared in a survey: “I feel like the OEMs aren’t sure right now. I’m expecting several months’ delay on vehicles I had scheduled to be built this month.”
What’s causing this shortage?
When the coronavirus pandemic began to affect businesses around the world, the semiconductor chip market saw a disruption in supply chains. These semiconductors control smartphones and computers, which need 200 to 400 chips, are vital in automobiles, as they control infotainment systems, engine emissions and collision avoidance systems. With the majority of these semiconductor chips manufactured in Taiwan and China, the problem grew worse with this slowdown.
When the demand for new vehicles dwindled in the first few months of the pandemic, chip manufacturers already shifted chip production away from cars to consumer electronics. The shortage eventually caught up with auto manufacturers once demand picked back up.
Manufacturers slowing production and temporarily closing factories
Automobile manufacturers have temporarily slowed down production or closed plants altogether for the month of January, due to this shortage. Here’s a brief rundown of how some major manufacturers have reacted to this shortage:
- Closed its Louisville, KY plant, which makes the Ford Escape and Lincoln Corsair.
- Closed its German plant, which makes the Ford Focus for the European market.
- Delayed production at its Mexican plant responsible for making the Jeep Compass
- Slowing down production at its Canadian plant, which builds the Dodge Charger, Challenger and Chrysler 300.
- Scaled back production at Texas plant that builds the Tundra.
- Slowed production at a South Korea plant.
- Slowed operations at factories in China, Europe and North America.
How will chip shortage affect car rental companies?
Car rental companies, particularly in the US, have already felt the effects of the global shortage of semiconductors used in automobiles. One licensee told Auto Rental News that fleet orders, particularly for rental, would be the first to get cut.
The same licensee had an OEM cancel an order of over 500 units, while another OEM pulled back on 60 orders scheduled for production. “Most (OEMs) have said ‘We’re monitoring it closely, cuts/changes may be coming,’” the licensee explained. “I think a lot of OEMs just don’t know yet how bad it’ll get.”
How can car rental operators handle this shortage?
Small and medium sized car rental businesses will have to be resilient in the coming months and prepare for the shortage in chips. It could prove to be advantageous for certain smaller businesses, if they don’t follow the normal fleet cycles that the bigger players in the industry do.
With this shortage expected in the coming months, smaller businesses would be well advised to ensure they’re well equipped with their existing fleet, as the vehicle demand continues to pick up, while the production of new vehicles slows down.
Companies with larger fleet sizes have sold off some of their fleet but aren’t expected to rush into selling off too many vehicles, due to this shortage. With incoming 2021 inventory slowing down, large commercial dealers are expected to hold on to their limited inventory a little while longer.
There will be some obstacles for rental companies of all sizes to overcome. With this information in mind, be sure to strategize your fleet management accordingly.
Our team is comprised of industry experts and are here to consult you. As we prepare to navigate through these next few months, be sure to take advantage of the knowledge Thermeon’s team possess and get in touch with us any time.
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