It is not a secret that the supply chain crisis in the automotive industry has taken its toll. The numbers are startling. There were just over 1.6M units sold in Canada in 2021 which was down almost twenty percent from a peak in 2017 when over 2M units sold. The most significant year over year decline was more than fifteen percent in 2020. By now, most people have a fundamental understanding of the chain of events precipitating this decrease. Starting with COVID-19 and factory shut-downs, these difficulties were compounded by chip shortages, new safety protocols and the scarcity of other raw materials such as glass, rubber and steel. And Canadian fleets, with overall lower volumes than their US counterparts, are feeling the scarcity in perhaps a more profound way.
The overall dearth of availability was only exacerbated by an increase in demand. COVID-19 created more demand for vehicles because public transit commuters didn’t want to share breathing space with other travelers. This created a confluence of lower availability and higher demand aggravating the problem. According to an October 21, 2021 article in The Canadian News, “Demand for cars has skyrocketed during the pandemic, with analysts citing accumulated household savings and concerns about using public transportation as important factors. And with more people wanting to drive, transportation experts warned of a major increase in car use that could lead to more congested and polluted cities after COVID-19.”
Automotive manufacturers have a finite capacity for production. The allocation process starts with the country and then from there, in Canada, the manufacturers divide the vehicles amongst dealerships, rental car companies and fleet management companies. In the past, in general, everyone got what they wanted, and allocation was not a problem. Under current conditions, the manufacturers must make decisions about where to satisfy demand. Those companies with previously higher order volumes are first on the list making it difficult for companies with lower volumes to secure needed units. And many of the OEMs are looking after their existing relationships first—so long-term customers are more likely to get allocation over new customers.
Another consequence of the supply shortage is the impact it is having on environment goals. In addition to the federal government’s goal to “to ensure at least 20 per cent of new light-duty vehicle sales will be zero-emission vehicles (ZEVs) by 2026, at least 60 per cent by 2030 and 100 per cent by 2035”, many companies have European or US parents with ESG goals set for 2025 through 2030. Therefore, BEVs (battery electric vehicles) and even PHEVs (plug in hybrid vehicles) are in high demand and even more difficult for fleets to get. According to Gary Bruce, Senior Manager, Strategic Sales for Wheels Donlen Canada, “The situation makes it challenging to achieve those year-by-year milestones. It is why we augment those plans by starting them in hybrid units vs. BEVs and breaking down the incremental goals to perhaps 20 percent each year until 2030.”
Gary goes on to explain that “as a fleet management company, we’ve had to look at creative solutions to keep our customers mobile.” Additional strategies to navigate the shortage include increasing replacement parameters and bolstering preventative maintenance, looking at dealer stock as well as retaining vehicles to form a pool from which to draw. The drawback with the dealer stock option is the price. For fleets, the price impact is double. Not only are volume discounts a thing of the past but purchasing a vehicle out-of-stock carries a premium because of competition with retail customers.
Retaining vehicles instead of selling them to form a pool is a newer phenomenon for sales fleets. Louise Clune, Fleet Consulting Manager at Wheels Donlen says, “Even companies that didn’t traditionally keep a surplus are holding on to their vehicles. Everything is being done to build out inventories, so they are not at the mercy of having to pay highly inflated prices due to low dealer inventory and increased demand.” In addition, some companies are turning to a variety of mobility options such as reimbursement and ride-sharing to keep their business on the move.
Fleet leaders understand the market constraints and conditions, but they still have people to move and goods and services to deliver. They need real solutions, which may mean employing a combination of these acquisition and mobility strategies. Louise explains, “I love the fleet management industry because I get the opportunity to solve complex problems and take care of our customer’s needs. We can’t make the situation disappear but we can do everything possible to help our clients get through this crunch.”