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Supply constraints in the fleet industry

Are you currently struggling with fleet supply constraints? Do you need support managing your fleet? Our experts can help.

Market conditions

Automotive industry

The automotive industry is continuing to experience challenging conditions which are affecting the availability and supply of vehicles. In a recent poll Fleet News suggests 94.4% of responders have experienced delays in ordering new cars and vans.

The initial causes were shortage of semiconductors and other materials used in vehicle production and the disruption to supply chains caused by COVID-19. In 2020, global vehicle production shrank by nearly 16% compared to 2019. 2021 saw a year on year growth of 3% (around 80 million vehicles), signalling some recovery.

However, since 2021 problems have been exacerbated by increases in energy prices and further reduction of the automotive parts market due to the conflict between Russia and Ukraine.  

Semiconductor supply 

The semiconductor supply issue is set to continue throughout 2022, with the automotive industry being severely affected. Two years of low production rates has led to an unprecedented backlog of demand for new cars and lengthy and dramatic increases in delivery timescales. 

General predictions from the market are that semiconductor supply into the automotive industry may not stabilise until 2024.

The effect of market conditions 

The market conditions are affecting all fleet acquisition options, with vehicle hire suppliers being disproportionately and severely affected by the general vehicle shortage. During the first year of the pandemic, suppliers reduced their fleet levels to match much lower demand. 

How this is effecting vehicles rental companies

Now that demand has risen to pre-pandemic levels, suppliers do not have enough vehicles to fulfil all orders. Rental companies are the least profitable market for vehicle manufacturers, well behind retail and fleet purchasing or leasing. As such, they will be the last to recover in terms of the supply of new vehicles within their fleets. It is estimated that companies are currently paying 30-40% more for vehicles now than they were in 2019. 

Where a single manufacturer may have supplied 20,000 vehicles into the rental market, nowadays it’s more like 200. This is directly affecting the vehicles rental companies have to offer, running at a turndown rate of 25-30% across the industry. Rental companies are taking strategic decisions to divert available vehicles to retail, rather than fleet. 

Optimum utilisation rates are around 88-90%, leaving room for some further vehicles to be out of use due to maintenance and turnaround of vehicles. More recently, the industry has seen utilisation around 92% and an unusually high number of vehicles being off road for maintenance, at around 8%, due to their increasing age of operation. This average of 100% total utilisation is resulting in the high level of vehicle turndowns. 

What can public sector fleets do to manage the constrained supply?  

Work with suppliers

Work closely with any appointed fleet management or lease providers to help you get a wider understanding of fleet operators. Have regular discussion with your fleet suppliers to better understand the pressures they are facing. In addition, keep them up to date on your priorities. By doing this your needs and their solutions are likely to be better matched.

Be pragmatic

Ask yourself if your contract and expectations for service levels and credits are realistic. Understand what your suppliers are doing to ensure they meet your requirements, and if they fall short, understand why that is. 

You may want to consider additional, contingency style contracts, but bear in mind that this is a whole market situation. If you agree to a temporary easing of these service levels, be sure to agree to a future date at which you will seek to reinstate them, testing whether the market is ready. 

Be flexible

When planning new vehicle purchases, leases or hires, allow as much time as possible to work with the suppliers and inform them of your needs. When hiring vehicles in particular, you may need to be more flexible on delivery or collection, or the category of vehicle you can accept. 

Be mindful of market changes

For purchases and leases of new vehicles specifically, be aware that due to extended lead times currently being experienced (often around 12 months) manufacturer’s retail prices may change before vehicle delivery. This may be due to changes in manufacturing costs and/or currency fluctuations. This does not necessarily mean an increase to your purchase/lease costs, but it will cause a cost pressure through the supply chain. Our advice is to work closely with your suppliers to understand the position for your vehicles.   

Review your travel policy

Take a holistic view of your transport options, using appointed or in-house teams to help inform this. Your travel policy will advise when is best to use public transport, pooled vehicles, hired vehicles or grey fleet, for example. 

Reach out to your network

Use your fleet network to share experiences and support one another. 

How can we help?

As commercial experts we can offer advice on ways to improve the fleet supply and service situation across the public sector. 

To find out how we can help get in touch or visit our Fleet Portal for more support and solutions:

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