Analyses
25 aoû 21

How fleets can overcome long delays in vehicle orders

Fleet decision makers need to take active steps to navigate the problems caused by long delays in new vehicle lead times, according to leasing industry executives. The shortage of semi-conductors, components and manufacturing materials has led to order times taking anywhere from six to 12 months longer than normal.

No manufacturer is immune to the issue. Toyota has announced that it will reduce production by 40% in September, making about 40,000 fewer cars for the European market; Ford is closing its Fiesta factory in Cologne for a week; Volkswagen and Audi have extended their traditional summer factory closures; and Stellantis, Renault, Daimler, Volvo and BMW have all revealed production issues due to the chip shortage.

Contract extensions

This leaves fleets facing decisions over whether to extend the contracts of their current vehicles; de-fleet vehicles on schedule and switch to short-term replacements while they wait for new vehicles to arrive; or even switch to alternative makes and models in order to secure earlier supply.

Extending contracts is an “easy and convenient way to stay mobile,” said Marchel Koops, Chief Commercial Officer, Athlon, adding that excess mileage charges and elevated maintenance costs unlikely to be an issue given the change in working practices over the past 18 months.

“The Covid-19 pandemic has an influence on the driven mileages due to working from home, meaning that a substantial fleet is facing under mileage,” said Koops.

Formalise agreements

It is important, however, to formalise these extensions rather than let current contracts drift, said Thierry Faure, ALD Automotive’s Head of Sales and Client Relations (pictured below).

“When you extend a contract the vehicle gets depreciated over a longer period, so the finance element of the lease decreases and your rental is lower,” he said.

Faure indicated that payments could fall by three to 10 per cent, depending on the length and mileage of the original contract, delivering useful savings to businesses in the current economic climate.

"Many of our clients benefit from our lease matrix, which guarantees pricing for contract extensions, based on a predefined set of calculations that are retrospectively applied from the first month of the initial lease contract. This provides our clients with overall transparency and protects them from any cost creep," said Faure.

But there are cases where contract extensions are more difficult, such as vehicle contracts that have already been extended once at the start of the pandemic; vehicles that have very high mileages; and very demanding drivers who are desperate to get behind the wheel of a new car. In these instances, fleets could terminate existing vehicles, and lease replacements on flexible short- and medium-term contracts which can be ended as soon as a permanent new vehicle becomes available.

Fleets should resist the temptation, however, to switch OEM supplier purely on the grounds of vehicle availability, said Faure. He advised fleets to stick with the manufacturers on their current choice lists, which have been selected on the basis of: “the best TCO, best CO2 and best commercial arrangements.” There’s no guarantee that orders placed with another manufacturer will not be caught up in similar delays.

Open orders earlier

Looking ahead, Faure recommended that fleet managers should open their new vehicle ordering process earlier.

“Fleets are not anticipating enough. We don’t know how long this semiconductor crisis is going to last but we should anticipate more,” he said. “Before the crisis, the best in class were ordering new vehicles six months prior to the end of their agreements; now they should be doing it nine months before.”

Images: Shutterstock and ALD Automotive

Authored by: Jonathan Manning