Automotive, fleet and Coronavirus – what to doFinance
The coronavirus (COVID-19) global pandemic has changed everyday life for all of us, with global economies slowing, and all industries affected.
The impacts on the global automotive sector will have a knock-on effect on our local leasing industry. Today, we look at some of those impacts and what we can do to assist you in managing your fleet.
5 disruptions to the new vehicle supply chain
1.Suspension of production– Car makers have had times when they have had to put manufacturing activities at some of their locations on hold, initially to protect employee health and then – sometimes – to shift to production of ventilators and face masks to support health care providers.
2. Supply chain disruption– More than US $34 billion worth of automotive components are normally imported from China each year. When many factories in China were severely affected by the coronavirus epidemic, it was difficult for car manufacturing plants to obtain the parts they need. While Chinese factories are starting to get up and running again, various other countries also had restrictions in place limiting the movement of non-essential products (including automotive components) across borders.
3. Disappearance of sales channels– Dealerships around the world have been forced to close at various times in order to protect employee and consumer health, so many OEMs are finding themselves cut off from their traditional sales channels.
4. Closure of registration offices – Non-essential governmental services have also had periods of prolonged shut down, making it difficult or impossible to register new vehicles.
5. Decline in demand– Needless to say, there has been a significant fall in demand for new vehicles globally.
From an OEM perspective, there may be a silver lining: a decline in demand causes a build-up of stock. Although high inventory levels are not always desirable, in this case car manufacturers will benefit from this extra agility, enabling them to capitalise on the sudden upswing in demand when the coronavirus restrictions are eased.
New Zealand imports 100% of all new vehicles registered on our roads. In the short term there will be limited supply of various makes and models, while the impacts on future pricing are not yet clear.
What does that mean to your business fleet?
Even if you wanted to renew your fleet, uncertainty around lockdowns and new vehicle supply are likely to make that difficult. More likely is that you will need to carefully manage the continuity of your current fleet while we all ‘weather the storm’ together. At the same time, you need to prepare to be ready for business once we arrive on the other side of this uniquely challenging global event.
Two measures you should consider are outlined here.
- Extend rather than renew your vehicle contracts
Each year, most companies renew between a quarter and a third of their fleet. Every new vehicle delivery ties you into a lease agreement for the next three to four years. Is that the right commitment for your business to make right now?
The smarter move is to take a close look at the vehicles that are up for renewal with a view to extending the existing lease contracts rather than placing orders for new vehicles. In most cases, this can generate immediate cost savings. It also buys you valuable time, and makes you perfectly positioned to swiftly spring into action once business picks up again.
- Change your current lease terms where you can
Even if leases aren’t due for renewal, you can still look to revise lease terms and annual kilometres. Perhaps the previously anticipated utilisation of your vehicles has now changed as a result of the impact of coronavirus on your business. This may afford you an opportunity to consider mid-lease changes to current arrangements, which would generate immediate lease cost relief for your business needs.
What is LeasePlan doing?
Our aim is to ensure we can adapt to the changing situation and keep our customers as mobile as possible.
LeasePlan’s specialist teams are currently will put together solutions to keep businesses moving through this crisis.
Talk to LeasePlan about
- A joint review of your business and an analysis of your fleet – focusing on vehicles up for renewal and opportunities for mid-lease changes
- A tailor-made proposal, a suitable future plan for you
- A variety of options to solve liquidity, risk exposure or business restriction challenges
Keep up to date with LeasePlan’s response to COVID-19 here.