The world is dealing with a global chip shortage due to the increased demand for semiconductors which is higher than the supply.
The chip shortage has crippled the automobile industry, especially the production of cars and trucks. There are no parts to produce the vehicles, which has led the automotive manufacturers to stop production.
Semiconductors is a topic giving professionals in the automotive and supply chain sleepless nights. Semiconductors have led to stretched dealer inventory, shut down of production lines, and an increase in used car values.
Let's look at why semiconductors are vital for vehicles, how the semiconductor shortage came to be, and what's next for the fleet industry.
What are semiconductors?
Semiconductors are materials with conductivity between insulators and conductors. Nowadays, vehicles cannot function without microchips. Most vehicles are electric and rely on semiconductors to control the battery and powertrain.
How we got here
For a long time, supply has always lagged behind the demand, but in 2018 demand was at its peak. Unfortunately, the 2019 COVID pandemic only made things worse. During the pandemic, the production of microchips and vehicles was reduced. As a result, auto manufacturers had to reduce their orders for microchips. The semiconductor shortage has led to production cutbacks in the automotive industry. Nissan, Ford, Toyota, and Fiat Chrysler are some of the automobiles that have scaled back their output.
The automotive chips comprise only 10% of the semiconductor demand, but the automotive manufacturers reacted slowly and it has now kept them at the back of the line. The demand for microchips in non-automotive industries spiked. Auto manufacturers were affected by the delays caused by the earthquake that affected Renesas, a leading microchip manufacturer. Auto manufacturers not only had to deal with the delays, but the weather in Texas also had an impact on the vehicle assembly timeline.
What's next?
The semiconductor shortage is not going away anytime soon, at least not this year. Lead times have been increasing and the lead time for microprocessors has gone up to 17 weeks from 10 weeks. The demand for chips will also increase since more people are demanding 5G technology. Furthermore, vehicles are also becoming technologically sophisticated. There has been a 75% jump in lead times for semiconductor parts.
One of the challenges is whether the supply chains will be able to keep up with the demand. The supply chain disruptions and shortages have led the Biden administration to order a review in the critical areas. President Biden has called for the U.S to invest in semiconductor infrastructure to combat the challenge. The Taiwan Semiconductor Manufacturing Company (TSMC), the largest semiconductor manufacturer, has increased its capital spending budget to $28 billion to help combat the semiconductor shortage. However, it will take years to scale up the manufacturing capacity.
What the semiconductor shortage means for fleets
Fleet managers still have to deal with the difficult acquisitions and have to adapt accordingly. Leaders in the supply chain and automotive must have a long-term strategy to help minimize the impact of the disruption. As a fleet manager, you must act with urgency whether you are securing a vehicle from dealerships, place factory orders, or build bailment pools. Hesitating will make a difference between losing a vehicle and securing it. Flexibility goes a long way in the fleet industry. It's crucial to take small steps to cut back on spare key requests, and pre-ordering will have a huge impact.
During a shortage, it's worthwhile to collaborate with a fleet management partner and be informed. It's a challenging time for the automotive industry. If you have innovative thinking, you can keep your fleets on the road. If you need help managing your fleet, contact us.
