OEMs continue to face production challenges — and COVID-19 is not only to blame. From semiconductor shortages to foam seating delays, a variety of factors are impacting the vehicle supply chain.
The recent power grid shutdown in Texas also halted production at local petrochemical plants. Byproducts from those refineries are sourced to manufacture polyurethane foam used in vehicle seating. Automakers are now facing reduced supply and are attempting to source foam through other methods.
Last year, demand for semiconductor chips shifted away from the auto industry as plants closed due to shelter-at-home ordinances. Coupled with OEM expectations of a decrease in consumer vehicle interest, this resulted in automakers purchasing fewer semiconductors. Alternatively, with people staying indoors, electronic manufacturers purchased the extra semiconductors, thus creating a deficit in inventory. Other factors such as advanced technologies, i.e., 5G phones, are putting increased pressure on the market. Although the semiconductor shortage was recognized as early as last year, these computer chips can take weeks to produce, which means new production is not immediately available.
Impact to automakers
OEMs were already experiencing a backlog of orders as they were forced to halt production during the early days of the pandemic. As they regained their pace, the chip shortage required select automakers to close their ordering windows early.
General Motors, Ford, Stellantis (FCA), Toyota and Honda each announced temporary assembly plant closures to allow semiconductor availability to increase. These automakers are working closely with suppliers to address the shortage and will review availability to assess production capacity on a weekly basis. Unexpected plant downtime can typically result in extended lead times or order cut-off dates being pulled forward. Please remember to order vehicles early whenever possible to avoid disruption to your fleet.
Automakers expect to receive some relief from the shortage this summer, but it’s certainly going to have some impact on MY22 production. Dealer inventory is still low and is expected to remain that way for at least the next six months. Although automakers try to prioritize fleet orders, they will be pressured to ramp up availability at dealerships. As a result, MY22 lead times may be further increased.
Impact to fleets
To secure new vehicles, fleet offices are being nimbler. Ensure you don’t miss cut-off dates, by ordering vehicles well in advance. In some cases, vehicle cut-off dates are being closed or drastically shortened without notice. In the case the desired vehicles are not available, fleet managers can shift color and feature preferences. Ordering early and selecting secondary options are the best-case scenarios in this difficult time — as withholding orders is not advised. There are financial ramifications on the back end when vehicles are held past the recommended timeframe.
As always, Wheels continues to keep a close eye on the situation and is in constant communication with OEMs. If you have any questions, please reach out to your Wheels Account Team.