How the Chip Shortage is still affecting Car Rentals

Two years after the pandemic began, the global supply chain has mostly stabilized. But there’s one industry where shortages continue: semiconductor chip manufacturing.

Last year we reported car rental companies were beginning to feel the effects of a global shortage of semiconductors used in automobiles.

Here we are, a year later and the problems still exist, with the Financial Times stating “the car industry is not clear when the chip crisis will end, with most manufacturers now expecting disruption well into 2022.”

The root cause started in 2020, when the pandemic decimated travel, forcing rental companies to sell off thousands of cars to keep afloat. However, when travel reopened, auto production was hit by the chip shortage meaning rental companies could not restock their fleets to meet demand.

This semiconductor shortage has meant there are simply not enough cars being manufactured, and carmakers are prioritizing retail sales ahead of rental car providers.

Hyundai Motor Co.’s sales to fleet buyers fell by 27% in 2021 as the company dedicated its production to satisfying retail dealerships. Jose Munoz, chief operating officer said in an interview “We made a strategy when I joined the company to prioritize retail versus fleet. We appreciate the fleet business, there is a very good fleet business there, and we try to support it as much as possible. But yes, we prioritize deliveries to the end customer.”

The problem is acerbated by potential buyers fighting over available models resulting in price hikes for consumers, who are already feeling the effects of a rising cost of living. Jonathan Weinberg, chief executive officer of AutoSlash, a third-party rental booking site, noted “We’re seeing some eye-popping numbers with average rates in Florida of $100 a day, $200 a day in Hawaii and $600 a day in Puerto Rico.”

With rental companies facing long lead times for new fleet vehicles, and safety concerns surrounding existing stock, the outlook is bleak. As Caroline Parot, chief executive of Europcar plainly states: “We cannot serve everyone we want to because there are not enough cars”.

The LA Times confirms that renting a car is going to continue to be a pain for consumers well into 2022, due to Microchip manufacturers saying it may be a year or two before supplies can start to meet the growing demand.

What are semiconductors?

So what are Semiconductors and why are they causing so much trouble in the car industry? Semiconductors are chips that control any kind of computer and are critical in new automobiles, which need 200 to 400 chips per vehicle. They not only control infotainment systems but also engine, emissions and collision avoidance systems.

Why is there a chip shortage?

The production problems in the semiconductor chip market intensified last year when coronavirus disrupted supply chains. Global demand for semiconductors grew by 15% in 2020, in spite of the pandemic. These chips are used in nearly every modern-day appliance from fridges to phones to toothbrushes.

Modern vehicles are using more chips than ever before, but they are competing for these with other industries such as smartphones and laptops – which saw a huge increase in demand when the pandemic forced children around the world to home school.

Unfortunately, the manufacture of semiconductor chips is extremely complex, expensive and time-consuming. There are only a handful of chip manufacturers in the world, and all of those manufacturers are currently operating at full capacity.

How can Rental Companies ride out the chip shortage?

On the whole, rental companies are going to have to hold on to their stock for longer. Auction houses have reported that while pre-pandemic rental stock was being sold with around 40,000 miles on the clock, 2021 saw the average rental car being sold when it reached 79,000 miles.

Make sure your rental software logs any damages your fleet sustains, so that you can addresses potential safety concerns and make necessary repairs to keep your fleet running better for longer.

Smaller operators, who don’t follow the same fleet cycles as larger operations, may be in a prime position to take advantage by being able to fulfil customer needs at short notice.

With smaller fleets to oversee, rental operators can access their inventory more efficiently using their car rental software program. It will involve careful planning and forecasting, but now is the time to take advantage to gain new customers and build loyalty as consumers look for alternatives when the big chains can’t satisfy their needs.

With RENTALL rental software, there is an extensive reservation module built to serve small to medium car rental operators. Combined with a powerful booking engine, RENTALL allows businesses to accept direct bookings through their website, as well as through third-party integrations such as Kayak and Skyscanner. This means you and your available stock will be visible, no matter where your customers go to book their car rental.