Automotive, fleet and coronavirus – what to do

The coronavirus (COVID-19) global pandemic has changed everyday life for all of us, global economies are slowing, and every industry is affected.

The impacts to the global automotive industry will have a knock-on effect on our local leasing industry. We look at some of those impacts and what you can do for your fleet.

5 disruptions to the new vehicle supply chain

1. Suspension of production
   Car makers have put manufacturing activities at some of their locations on hold, initially to protect employee health and then – in some cases – 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. With many factories in China severely affected by the coronavirus epidemic, it has been 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 have since put restrictions in place limiting the movement of non-vital products (including automotive components) across borders.
3. Disappearance of sales channels
   Dealerships around the world are being forced to close 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-vital governmental services are also being 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 the OEM perspective, there may be a silver lining to this situation: the decline in demand is causing a build-up of stock. Although high inventory levels are not always desirable, in this case car manufacturers will benefit from extra agility, enabling them to capitalise on the sudden upswing in demand when the coronavirus restrictions can be eased.

Australia is a 100% importer of vehicles. There will be limited supply of various makes and models, and impacts on future pricing are not yet clear.

What does that mean to your business fleet?

Even if you wanted to renew your fleet now, limitations and uncertainty on new vehicle supply might make that difficult. More likely is that you need to manage the costs of your current fleet better – looking to ‘weather the storm’ and be business ready when we get to the other side.

Two immediate measures you should be taking are outlined here.

1. 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.

2. 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 anticipated use of vehicles is slashed under coronavirus restrictions. This could allow mid-lease changes to operating costs, bringing immediate rental relief on fleet vehicles your business needs.

What’s SG Fleet doing?

Our aim is to ensure we can adapt to the changing situation and keep our customers as mobile as possible in these uniquely challenging times.

SG Fleet has teams of experts that are putting together solutions to keep businesses moving through this crisis.

We want to help our customers manage their money and prepare them for the post COVID-19 world.

Talk to SG Fleet

Speak to a representative about

• A joint review of your situation, and an analysis of your fleet – with an extra focus on the vehicles that are up for renewal and opportunities for mid-lease changes
• A tailor-made proposal
• Implementation of agreed actions

Driving Insights