The Effects of the Microchip Shortage on the Auto and Rental Industries

Tilt-shift photography of green computer motherboard

The Effects of the Microchip Shortage on the Auto and Rental Industries

Tilt-shift photography of green computer motherboard

The world is experiencing a shortage of semiconductor microchips.

These microchips are used in phones, gaming consoles, and vehicles, therefore the sudden shortage is taking its toll on the auto and auto rental industries. Car manufacturers like Volkswagen and Ford have shut down operations temporarily, resulting in canceled fleet orders.

Many OEMs (Original Equipment Manufacturer) have canceled their silicon chip orders due to this shortage, with fleet orders for rentals expected to be hit the hardest. OEMs have stated with this shortage, delays in vehicle manufacturing are to be expected, especially for trucks and SUVs.

What is a semiconductor/silicone microchip?

Semiconductor microchips are a critical part of automobile production as they control infotainment systems, collision control systems, and emission control. Car semiconductors require 200 to 400 microchips each.

What caused the microchip shortage?

The microchip manufacturing market started experiencing production problems in 2020 when the COVID-19 pandemic first hit. Travel restrictions and health safety precautions affected the supply chain as OEMs canceled orders for semiconductor chips.

As there was a drop in demand, microchip manufacturers reduced production and focused more on consumer electronics. Due to the pandemic, many governments imposed curfews that led to people purchasing more gaming consoles, laptops, and smart devices. This phenomenon encouraged microchip suppliers to adjust production accordingly.

However, the automotive industry recovered sooner than anticipated, causing microchip manufacturers to scramble to meet the demand. Since there is a shortage due to a lack of preparedness, car production has halted.

How are car manufacturers reacting to the microchip shortage?

The auto industry is experiencing an estimated loss of $61 billion; due to the lack of semiconductor microchips slowing down production. Many big names in car manufacturing have suffered losses, with some even having to shut down operations.

Ford closed both its Louisville plant and German plant in January for one month. The Louisville plant produces the Lincoln and Corsair cars, while the German plant makes the Ford Focus for the European market.

Stellantis (FCA) delayed restarting operations at the San Antonio (Mexico) plant (Jeep Compass). They also scheduled a break from manufacturing for their Canadian plant where they make the Dodge Charger, Challenger, and Chrysler 300.

Toyota also ceased operations at their Texas plant (produces the Tundra), with General Motors slowing production at their South Korea plant. Volkswagen also slowed down factory operations at their Chinese, European, and North American plants.

Subaru also ceased operations at one plant in Japan and their Lafayette, IN plant. However, Subaru expects its year-end project target to be fulfilled. Honda has also slowed down output at some of its plants.

The effect of the microchip shortage on rental businesses

The kink in the supply chain will cut fleet orders for car rental companies. OEMs are reporting delays for car orders, with many canceling orders altogether. One such OEM had to cancel a 500 unit order, delaying fleet manufacturing.

Reports suggest a significant production delay for trucks and SUVs. Many licensees have also canceled orders or halted operations due to delays in fleet orders.

How can car rental businesses survive this?

Due to delays in car manufacturing the rental industry will experience a fleet shortage. However, smaller businesses that do not depend on fleet cycles are better equipped to serve consumer demand.

Smaller car rental operators have smaller fleets that are ready to go. Since prices and demand are going up, small business owners can take advantage by serving the consumers’ needs. Efficiency and versatility are crucial now and using your auto rental software accordingly will help you manage your business with ease.

Using Technology to plan accordingly

Incorporating a fleet management software program into your business will help you manage everything, from bookings to car maintenance. You can gain direct access to reservation status, car status, driver status, and mileage from a smart device.

Navotar’s cloud-based car rental software is the answer for all your fleet management needs. The software helps you manage reservations, schedule car repairs, facilitate online payments, detect car status and driver behavior in real-time, and much more.

A fully comprehensive solution can help with marketing as well. With an integration to your website, automated SMS and emails can be sent to customers promoting deals or offers. Rewarding loyalty could help promote your business and reassure customers during these uncertain times.

The software can be linked to a custom app, which is more versatile and efficient for bookings. An app requires no human contact, which is extremely practical in a time when public health guidelines call for people to practice social distancing. Sticking to health guidelines and strict decontamination protocols will show potential customers that you prioritize safety and health first.

A bonus feature available within Navotar’s car rental solution is an integration to CRX. You can connect your website to travel network sites like Kayak and SkyScanner via an integration into the CRX booking engine. Travel network sites like these can help give your business more visibility online and expand the reach of your business. Using this innovative tool during a time when your business has the potential to reach more customers has the potential to pay dividends in quick fashion.

For more information on our auto rental software or any further information, you can reach out to us at sales@navotar.com.

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By Navotar  /  28th April 2020