What Is Going on With Lead Times, and What Should You Do in the Meantime?

If you have ordered a company car recently, you have likely been bedevilled by lengthy lead times. Months or even years long waiting times for new vehicles have become the new normal in the wake of the Covid 19 pandemic, as the automotive industry sluggishly recovers from a sharp fall in demand and debilitating parts shortages. While supply is gradually improving, the average waiting time for a new vehicle remains an eyewatering 43 weeks, and the unfortunate prognosis from industry experts is that lengthy lead times are likely to persist through 2023, into 2024, and potentially – forever. Why then is supply not keeping pace with demand, and what options do you have in the meantime?

The principle driving force behind production delays is a shortage of microchips. As cars become inexorably closer to computers on wheels, more chipsets are required in their production, and a supply issue with a single tiny silicon chip can render an otherwise complete vehicle unable to leave the assembly line. When the pandemic struck in 2020, orders for new automobiles collapsed precipitously, and an uncertain demand outlook influenced suppliers to order vastly fewer microchips than they had previously. This dearth of orders coincided with an increase in demand for chip laden durable goods and consumer electronics, as work went remote and many professionals suddenly had more free time and disposable income. A perfect storm of conditions thus left the auto industry bereft of microchips, and unable to promptly fulfil orders when demand regained confidence.

Fortunately, the microchip shortage is a temporary shock which is now somewhat improving. It is not however improving particularly quickly. In a poetic echo of car dealers revising their estimates of when your car will be available for delivery, Intel CEO Pat Gelsinger now expects that shortages will last well into 2024, up from an initial estimate of 2023. While the chip shortage is gradually improving, another sinister market force is emerging to further exacerbate long lead times – they’re good for car manufacturers.

It may sound counterintuitive, as for decades the car industry has been built around volume, with manufacturers frequently selling vehicles at a loss in order to gobble up market share. With the automotive industry utterly disrupted and turned on its head by the pandemic however, it has perversely become more profitable to sell fewer vehicles. Take industry stalwart BMW AG for example, last year the group recorded the strongest profits across their 3 brands (BMW, Mini and Rolls Royce) in their 106 year history. This represents a growth in net profits of 150% on pre-pandemic 2019, despite the group delivering fewer vehicles. A significant portion of this growth has been fuelled by the group’s financial services division, owing to used cars commanding higher prices when they are returned to the dealership at the end of a lease; with higher prices for used cars being driven by constrained supply.

BMW AG are particularly illustrative of this trend, but by no means unique, with many manufacturers maintaining or increasing profits despite delivering fewer units. While supply of new vehicles will doubtless increase in the coming years, as electrification gathers pace and Chinese automakers look to enter the lucrative European market, lead times for new vehicles are likely to remain as high as 6 months for years to come according to chair of the Vehicle Remarketing Association Philip Nothard.

So if you are still waiting for a new vehicle, to paraphrase Lenin: what is to be done? One option which is growing in popularity is car subscription. Car subscription functions on a similar basis to a lease, but can often work out cheaper, provides more inclusive services, and crucially offers greater flexibility. Car subscription services take care of road tax, maintenance and MOTs, and give you the opportunity to extend, cancel, or swap to a different vehicle any time. This means if you have a specific car on order that is being repeatedly delayed, subscription provides a flexible stop gap that you can extend or return as and when your vehicle becomes available. The ability to swap between vehicles also enables businesses to test if the newest electric vehicles (and their 2% benefit in kind) meet their needs, without risking being laboured with a white elephant should they prove unsuitable.

To learn more about the benefits of car subscription and assuaging onerous lead times, visit https://mycardirect.co.uk/

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