What’s the Supply Chain Impact on Vehicle Industry?

With the economy impacted by the pandemic over the past few years, the new and used vehicle sales have become tumultuous. Several fleet managers we’ve spoken to have struggled to receive the new vehicles they’ve ordered, which is making fleet costs and customer service very challenging. The supply chain challenges are also taking a toll on fleet management organizations due to both the inability to acquire repair parts and the long shipping delays to receive the parts needed.

Many fleet managers find themselves engaging in practices like purchasing used vehicles versus new and cannibalizing older vehicles to salvage parts to meet fleet availability and reliability demands. The latter practice of cannibalization has long been regarded as a taboo among many fleet professionals due to the amount of time wasted removing used and potentially unreliable parts. Additionally, the bad practice of cannibalizing has a serious impact on selling used vehicles, which is especially problematic in a used vehicle market with the prices seen in 2022.

Fleet managers now find themselves in the unenviable position between keeping older, less reliable vehicles on the road or selling them at a higher premium based on the inflated market.

What’s Next?

Perusing through several industry articles regarding new and used vehicle trends, it is not as bleak as it looks according to experts like the Cox Automotive Industry Insights team. They outlined 10 trends in January they predict will shape the fleet industry in 2022-23, giving reasons for some optimism. Although the Cox team admits they don’t have a crystal ball to make predictions, they feel confident with what they are seeing on the horizon.

Here is a quick recap of these Cox forecasting trends:

Despite the pandemic, sufficient demand exists to support new and used-vehicle sales in 2022.

Consumers are expecting higher prices, but enough buyers exist to support new-vehicle sales.

Total used-vehicle sales are forecasted to be down slightly from 2021, but should still be at a healthy number.

With new vehicle inventory historically low, the used-vehicle demand is notably higher and is reflected in the prices.

Tight supply will improve toward the end of 2022, easing the demand for used vehicles. The worst of the ‘empty-lot syndrome’ is in the rearview mirror.

The EV Growth is projected to outpace industry growth as hybrids, plug-in hybrids, and pure battery electric vehicles sales surge.

With elevated gas prices, 38% of new-vehicle shoppers are now considering EVs.

Inflation is at the highest level since 1982, and from a historical perspective, rates most likely will rise to help mitigate vehicle price inflation.

Lease demand should improve in 2022 as leases have been notably lower during the pandemic – at their lowest point since 2013.

As consumers seek ways to lower monthly payments from price hikes and higher interest rates, leases should get a new life.

An increase in leasing in 2022 will help the used-vehicle market.

The average vehicle age is 12 years. With higher vehicle prices, more consumers will be focused on fixing, rather than replacing assets.

Americans will drive more in 2022 as they avoid public transportation, opt to drive versus fly, and return to a hybrid work environment.

The number of dealers is expected to shrink due to continued consolidations in 2022.

While the traditional dealership model is strong, buyers are becoming increasingly digital and jumping to more online purchase models.

Supply Chain Forecast

Amid the debacle seen in 2021 related to the chip shortages and preventive maintenance costs escalating between 3 and 5%, the issues with vehicle supply and parts are expected to ease in 2022.

According to ACERTUS CEO Trent Broberg, “the automotive supply chain has been battling pandemic-fueled parts and chip shortages for about 18 months at this point. This challenge has made it impossible for manufacturers to keep up with consumer demand. While shortages persist, [we believe] 2022 may ultimately prove less stressful for manufacturers, sellers and buyers alike.”

This said, there will be a few changes by manufacturers in the coming months as they cut back on the number of chips required per vehicle. This means high-end consumers will likely have to forgo buying vehicles with the expected bells and whistles they are used to having.

Lastly, it is predicted that consumers and fleet managers have not seen the extent of the prices related to inflation. As inflation continues to plague the auto industry, it’s likely we’ll also see major increases in new car and replacement part costs. These increases will be manifested in commodities like sheet metal, rubber, plastics, and electronics during the coming months.

Finally, while it’s likely to continue to be a challenging 2022, forecasters are slightly more optimistic as we move into 2023. Regardless of these challenges, most fleet managers we know are up to the task and most likely will become much more creative as they cope with the current market.

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About the Author: Steve Saltzgiver is the Director of Strategic Innovation at RTA. His primary role is to help RTA make fleets successful. Steve is a long-time veteran of fleet management, having directed two large corporate fleets of over 50,000 assets with budgets exceeding $1 billion annually, and two large state fleets. He has been recognized as a fleet management expert and consultant. Currently, Steve is a member of the RTA Executive Leadership Team directly oversees the Product Management Group and helps lead organizational strategy. The RTA Product Management group’s primary responsibility is to create leading-edge products and services to aid fleets with a winning strategy to become successful.