The Effects of Chip Shortages and Car Rental Companies

The world is facing its worst chip shortage crisis in decades. As a car rental company, the stressors of the semiconductor supply chain shortage saga would undoubtedly stress the limited supply and shoot up prices of cars. In the US, some car rental companies are even resorting to buying used cars in auctions to keep up with the demand of car rentals. As this is a global crisis, Singapore car rentals are not spared. 


What are Semiconductor Chips?

Semiconductor chips are everywhere – from the daily electronics like smart phones, computers, to automobiles – you name it, they are in it. Semiconductors chips are an extremely important component of new vehicles for infotainment systems, ignition, power steering and brakes. These chips, packaged in electronic control units, act somewhat as the “brains” of the hardware, telling it what to do electronically. 


Experts say that a vehicle could require a couple of hundreds of semiconductors, with higher-priced vehicles with additional advanced safety and entertainment systems having far more. The number is also said to increase as the automobile industry strives towards electric vehicles. 


However, this semiconductor shortage, which was initially foreseen to be a slight bump in the road, turned into a never-ending hill semiconductor chip suppliers need to climb. This had led to many cars sitting in the garage, waiting for chips to arrive. 


How it Happened – The Supply Chain Crisis 

COVID-19 Crisis

The COVID-19 Pandemic was the start of the supply challenges. Facilities shut-downs, as well as the rapid expansion of electronic sales, resulted in a 5-9% increase in semiconductor sales above the forecasted growth. 


As the demand for electronic devices grew, in part due to the work from home arrangements worldwide, the demand for chips soared. To combat this, the supply of chips was also diverted away from the automobile industry to the production of more pressing electronic devices. 


In addition, facilities were also shut down due to the series of natural disasters that impacted the supply chain. Fire break-outs in semiconductor plants, power outages due to Texas winter storms; 7.3 magnitude earthquake hitting the northeast coast of Japan, and the surge of COVID-19 infections in countries of which these semiconductors manufacturers reside, all resulted in exacerbating effects of the global shortage of semiconductors. 


Lastly, as the restrictions eased, the auto sector demand also recovered faster than anticipated, with the demands of long term car rental and short term car rental increasing as soon as the restrictions ease as people are eager to start traveling. However, the semiconductor supplies have already shifted production to meet demands of other industries. 


Steady Increase in Supply

While the semiconductor sector has expanded steadily, the demand for chips has been consistently high, and even though the semiconductor industry has succeeded in increasing its manufacturing capability by almost 200% in the last decade, it is not enough to meet the current demands. 


The Effect on the Auto Industry

It is uncertain when this semiconductor shortage crisis will end, but experts believe that it could be sustained till 2023, as demand continues to remain high, while supply dwindles. 


Halt in Production 

For some automakers, there has been a halt in production of certain cars and for cars that require more semiconductors, which also includes the production of electric vehicles. The miscalculation of vehicle demand due to COVID-19 pandemic leads to gaps in vehicle production and sales and thus, vehicle delivery delays. 


Dropping of Certain Features 

In addition, some automakers are opting to drop certain features that rely heavily on chips. For example, Nissan has decided to leave out the navigation system for thousands of vehicles. It also no longer offers rearview mirror monitoring for blindspots. For Renault, it has stopped offering larger digital screens behind steering wheels on the Arkana SUV, saving on semiconductors. Stellantis, a car dealer in the US, which owns Jeep, Ram and other brands, are leaving out pickup trucks without the Electronic Detection System, which looks out for blind spots. General Motors is manufacturing pickup trucks without fuel management systems. 


These disruptions in their features that would help provide a better user experience would then cause the automobile industry a drop in market share. Experts are saying that it may cost the automobile industry up to US$110 billion loss in revenue this year.


Diversion of Chips

Lastly, companies are also diverting chips away from the less popular car brands to the ones that are in more demand. However, due to the huge supply gap, there is no certainty that these automaking companies would have enough chips for even the prioritized models. This has then led to tens of thousands of cars sitting in the parking lots, waiting for chips to arrive. 


The Impact on Car Rental Industry

Simply put, the lack of supplies in the chips has led to a sharp decrease in new vehicles, and there aren’t enough cars to go around. 


With restricted international travel, many travelers have opted for domestic travel, and car rental companies have seen an influx of rentals during periods where domestic traveling via car rental becomes the only traveling alternative. Despite an increase in acquisition expenses to build up one’s car fleet, the car crunch has benefited the rental economy as there seems to be a growing demand for cars. 


In Singapore, we are also seeing it in a smaller scale, where extravagant end-of-year travels are substituted with multiple staycations and efforts of exploring our own places of interests in small groups. 


Interested in car rental? 

Understanding the car rental landscape is crucial; understanding your rental needs is even more paramount. Whether it be a long term car rental, a short term car rental, or renting a commercial vehicle, it’s important to know the pros and cons of each decision, the effect of the landscape to understand the best decision for yourself. 


To learn more about car rental, visit our “News & Events” tab to read more about different categories of your interests and to understand your car rental needs. 


Here are Some of the Articles You May Want to Check Out: 

Read: “Why The Rental Economy Is Here To Stay?” to understand more about why car rental is an emerging popular choice as compared to car ownership in a post-covid and post semiconductor crisis landscape. 


Read: “A Guide To The Different Types of Car Rental Vehicles” for a quick review of the different choices in car rental vehicles at your disposal. 


Read: “The Cost of Different Types of Petrol for Rental Cars in Singapore” for a quick breakdown of the different types of petrol offered at petrol kiosks.


Interested to know more about car rental in Singapore? Speak to our friendly sales associates to find out more about car rentals, how it works and which car best suits your car rental needs.