Ongoing Challenges for Vehicle Rentals

The Covid-19 pandemic took just weeks to overturn the norms of our work, life and travel patterns, but the return to normality is happening slowly. Road traffic returned to pre-pandemic levels at the end of May [1] and, since restrictions were relaxed in July and August [2,3,4,5], businesses are beginning to move again.

However, the legacy of last year's disruption is a backlog of challenges for supply chains which is putting huge strain on the rental industry. Here's why.

From engine management to the latest safety technology, vehicles of all sizes rely on hundreds of semiconductor chips to meet the demands of customers and regulators. These are made in a handful of specialist facilities which, as a result of socially-distanced staffing, extreme weather [6,7,8] and growing demand for home office equipment, are struggling to keep up with supply. With new Covid-19 outbreaks in Asia [9] and a six-month lead time to set up new factories [10], supply constraints are expected to last into 2022 [11].

The effects differ between manufacturers, but production capacity is restricted across the board. We're hearing of car lead times being extended to mid-2022 and vans until Q4, while some orders are being cancelled altogether. Some manufacturers are removing non-essential equipment, or suspending certain trim levels, to avoid delays.

However, even bulk vehicle orders are being cancelled, leaving suppliers with smaller fleets than they had planned for. Vehicle availability has become the priority concern for 59% of BVRLA members, according to a recent survey [12] and some are extending lifecycles to avoid shortages. For customers, it means vehicles may be older than they are used to and could also be missing certain equipment.

With demand for new vehicles outpacing supply, the used market has never been stronger. BCA Group and Cox Automotive are reporting record transaction prices for cars and vans at auction as dealers compete for whatever stock is available [13,14]. Again, this is disproportionately affecting commercial vehicles as incoming clean air zones and the expanded London Ultra-Low Emission Zone [15] drive up demand for Euro 6 compliant models [16].

It changes the business case for remarketing vehicles, which could be more valuable than expected. Rental suppliers are having to weigh up whether to capitalise on strong used values or extend lifespans to fill the gaps left by delayed vehicles orders, risking additional maintenance costs and downtime. This could mean further vehicle shortages.

A backlog of demand from the construction industry, following shutdowns last year, is also disrupting the supply of other materials used in cars and vans. There is a worldwide shortage of timber [17] used in van load liners, and new EU-wide import rules are restricting the supply of steel into Europe [18]. Both are inflating material costs.

European automotive industry association ACEA has expressed concern that steel shortages will cause a bottleneck for vehicle manufacturing [19] while a limited supply of timber could result in longer repair times for vans.

Supply disruption is exacerbated UK's shortfall of 100,000 lorry drivers, according to the Road Haulage Association [20]. This is affecting the movement of vehicle parts for repair and maintenance [21], which 64% of BVRLA members believe will impact their business in the near future [12].

Most legal restrictions to curb the spread of Covid-19 were removed in July and August, but rental suppliers are continuing to follow guidelines to employees and customers safe. Social distancing is reducing staff in many offices and vehicle logistics, and cleaning times between loans have also increased. Additional disinfecting and deep cleaning has extended this from 10-15 minutes to 45 minutes.

Fewer staff in vehicles limits the amount of collections and deliveries that can be carried out in one day. Suppliers are planning logistics further in advance, and prioritising deliveries to help keep customers moving. This is likely to continue for the foreseeable future, removing some of the flexibility businesses are used to. Fuel shortages across the UK only make this more challenging, as this can lead to large detours for pre-delivery refuelling.

Office working is becoming more commonplace as legal Covid-19 restrictions have eased, and business travel is increasing as a result. Traffic has returned to pre-pandemic levels, but the recovery of public transport is lagging [22] and rental demand is growing.

It's set to put pressure on an already supply-constrained rental sector, particularly for vans. A recent study by UPS found a quarter of UK customers are now planning to do more or all of their shopping online - a 67% increase on pre-pandemic levels [23] - which will accelerate the already challenging pre-Christmas rush for additional delivery vans. Businesses are making bookings earlier and, with limited vehicle supply, some are offering a car as an alternative if it can meet customers' needs.

Despite the ongoing challenges, we're working hard to keep your business on the road. LeasePlan Rentals has access to the UK's largest rental parc - with 600,000 vehicles available from 2,000 multi-supplier locations across the country - which means we can usually get you what you need. However, we would advise taking extra steps to keep your business moving:

• •
  Plan Ahead: Identify your fleet requirements as early as possible and make reservations on your LeasePlan rental portal “DRive”. This will enable us to request vehicles from our suppliers, highlight any supply challenges and find solutions.
• •
  Consider Alternatives: LeasePlan Flexible is an alternative for businesses needing cars or vans for several weeks or months. This is stock from our own fleet, predominantly desirable plug-in hybrids with CO2 emissions of 50g/km or less, with the option to select specific vehicles to suit your needs. There's no long-term commitment, so you can simply extend, or off-hire, vehicles as required.
• •
  Expect Business as Unusual: Our broad supplier base means we can accept 98% of bookings, even for high-demand vehicles such as vans, estates and 4x4s. However, shifting between suppliers might result in slight changes to delivery times.
• •
  Alternative options to one-way hires: For the short term we recommend using alternative modes of transport - such as taxis or public transport - for one-way journeys, such as getting to and from airports.
• •
  Speak to Us: Your LeasePlan account manager is on hand to listen to your concerns and help alleviate any issues going forward. If you have any queries regarding a live booking request, contact our rental team on 0344 493 7654.

[1] Department for Transport. (2021) Use of transport modes: Great Britain, since 1 March 2020. [online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1017781/COVID-19-transport-use-statistics.ods [Accessed 21 Sep. 2021].

[2] Health and Safety Executive. (2021). Keeping workplaces safe as coronavirus (COVID-19) restrictions are eased - sources of advice. [online] Available at: https://www.hse.gov.uk/coronavirus/roadmap-further-guidance.htm [Accessed 21 Sep. 2021].

[3] nidirect. (2021). Coronavirus (COVID-19) regulations and guidance: what they mean for you. [online] Available at: https://www.nidirect.gov.uk/articles/coronavirus-covid-19-regulations-and-guidance-what-they-mean-you [Accessed 21 Sep. 2021].

[4] Scottish Government. (2021). Scotland to move beyond level 0. [online] Available at: https://www.gov.scot/news/scotland-to-move-beyond-level-0/ [Accessed 21 Sep. 2021].

[5] Welsh Government. (2021). Alert level 0: summary. [online] Available at: https://gov.wales/alert-level-0-summary [Accessed 21 Sep. 2021].

[6] NXP Semiconductors. (2021). NXP Resumes Operations at Austin, Texas Facilities Following Weather-Related Shutdown and Provides Revenue Update [online] Available at: https://media.nxp.com/news-releases/news-release-details/nxp-resumes-operations-austin-texas-facilities-following-weather [Accessed 21 Sep. 2021].

[7] Infineon Technologies. (2021). Infineon re-ramps production in Austin, Texas, and provides update on customer impact, pre-shutdown output level expected in June 2021.[online] Available at: https://www.infineon.com/cms/en/about-infineon/press/press-releases/2021/INFXX202103-054.html [Accessed 21 Sep. 2021].

[8] Wu, D & Wang, C (2021). Taiwan Cuts Water Supply for Chipmakers as Drought Threatens to Dry Up Reserves [online] Available at: https://www.bloomberg.com/news/articles/2021-03-24/taiwan-raises-red-alert-over-water-cuts-supply-for-chipmakers [Accessed 21 Sep. 2021].

[9] Wu, D, Lee, Y & Ngui, Y. (2021) Chip Shortage Set to Worsen as Covid Rampages Through Malaysia. [online] Available at: https://www.bloomberg.com/news/articles/2021-08-23/chip-shortage-set-to-worsen-as-covid-rampages-through-malaysia [Accessed 21 Sep. 2021].

[10] Yinung, F. (2021). Chipmakers Are Ramping Up Production to Address Semiconductor Shortage. Here's Why that Takes Time. [online]. Available at: https://www.semiconductors.org/chipmakers-are-ramping-up-production-to-address-semiconductor-shortage-heres-why-that-takes-time/ [Accessed 21 Sep. 2021].

[11] Gartner. (2021) Gartner Says Global Chip Shortage Expected to Persist Until Second Quarter of 2022. [online] Available at: https://www.gartner.com/en/newsroom/press-releases/2021-05-12-gartner-says-global-chip-shortage-expected-to-persist-until-second-quarter-of-2022 [Accessed 21 Sep. 2021].

[12] BVRLA. (2021). Business Impact Research May 2021. [online] Available at: https://www.bvrla.co.uk/resource/business-impact-research-may-2021.html. [Accessed 21 Sep. 2021].

[13] BCA Group (2021) BCA Dashboard - Car and LCV values remain on a high. [online] Available at: https://www.bca.co.uk/news/bca-dashboard---car-and-lcv-values-remain-on-a-high-20210823/ [Accessed 21 Sep. 2021].

[14] Cox Automotive. (2021). Dealers urged to brace themselves for further supply headwinds. [online] Available at: https://www.coxautoinc.eu/content-hub/fuel/car-market-tracker-august-2021/ [Accessed 21 Sep. 2021].

[15] Transport for London. (n.d.). ULEZ expansion. [online]. Available at: https://tfl.gov.uk/modes/driving/ultra-low-emission-zone/ulez-expansion?intcmp=53057 [Accessed 21 Sep. 2021].

[16] Cox Automotive. (2021). ULEZ expansion fuels another record-breaking month for LCV average selling prices at Manheim. [online] Available at: https://www.coxautoinc.eu/content-hub/fuel/cv-market-tracker-september-2021/ [Accessed 21 Sep. 2021].

[17] Timber Trade Federation. (2021). TTF warns of major challenges ahead for timber users in Q3 2021. [online] Available at: https://ttf.co.uk/ttf-warns-of-major-challenges-ahead-for-timber-users-in-q3-2021/ [Accessed 21 Sep. 2021].

[18] European Commission. (2021). EU prolongs steel safeguard for three years. [online] Available at: https://trade.ec.europa.eu/doclib/press/index.cfm?id=2280 [Accessed 21 Sep. 2021].

[19] ACEA. (2021). EU steel import decision disregards interests of auto sector. [online] Available at: https://www.acea.auto/press-release/eu-steel-import-decision-disregards-interests-of-auto-sector/ [Accessed 21 Sep. 2021].

[20] Road Haulage Association (2021). Driver Shortage: RHA and freight industry write to Prime Minister Boris Johnson. [online] Available at: https://www.rha.uk.net/news/news-blogs-and-press-releases/press-releases/detail/driver-shortage-rha-and-freight-industry-write-to-prime-minister-boris-johnson [Accessed 21 Sep. 2021].

[21] Bank of England. (2021). Agents' summary of business conditions - 2021 Q2. [online] Available at: https://www.bankofengland.co.uk/agents-summary/2021/2021-q2 [Accessed 21 Sep. 2021].

[22] Grant, A. (2021). UK road traffic back at pre-Covid levels. [online] Available at: https://fleetworld.co.uk/uk-road-traffic-back-at-pre-covid-levels/ [Accessed 21 Sep. 2021].

[23] UPS United Kingdom (2021). How to improve your ecommerce business. [online] Available at: https://solutions.ups.com/gb-smart-ecommerce [Accessed 21 Sep. 2021].