The global shortage of semiconductors has been affecting vehicle delivery for months and there isn’t a clear end in sight. What does it all mean? What steps can you take to mitigate the effects?

Semiconductors & Vehicles

Consumers are expecting more technological advances and complex systems from their vehicles. The most basic building blocks of these systems is the semiconductor. Semiconductors are composed mostly of silicon, sometimes germanium. These conductors are an integral part of the computer chips that process the signals and commands needed to execute commands from the CPU(Central Processing Unit).  This system is responsible for everything from fuel combustion to playing your favorite songs.

The Shortage Explained 

With demand for computer chips increasing for new vehicles and manufacturing capabilities unable to keep up, the price of the computer chip has been substantially increasing in the past decade. Vehicle manufactures keep a small amount of these chips in inventory, relying on scheduled deliveries to keep up with vehicle creation.  When the Covid-19 pandemic led to worldwide lock downs, auto makers predicted a drop in demand for new vehicles. This led to inventory reductions of manufacturing parts including the expensive computer chips. Surprisingly, demand for new vehicles increased which created a strain on the supply chain for manufacturers. As manufacturers ordered chips to keep up with this new demand, their orders were placed behind video game consoles, phones, computers, and a variety of consumer goods that thrived in the lockdowns. The demand for new chips has never been higher and many facilities were limited in production capacities as part of Covid restrictions. This situation was additionally strained by a fire at one of the key plants in Japan, further lowering production capacity.

How Can You Mitigate the Effects?

This shortage is trending to be with us for the foreseeable future, with experts predicting the shortage to last into 2022.  This impacts delivery times, availability of vehicles, and pricing. The number one way to mitigate this is to factory order as soon as you can. Work with your fleet professional to look at your cycling plan to identify opportunities to order early, minimizing delays. Having the ability to be flexible in your selections and timeline will help keep your fleet running smoothly. This flexibility includes working with your fleet management company to find different makes, models, and trims that will suit your needs.  Creating a flexible forward looking plan with your fleet professional will ensure that you fleet is minimally impacted by any disruptions from chip shortages or any other black swan events.