Welcome to CFF-TV Hot Topics! The Chip Shortage is REAL!

This hot topic is real. I want you, when you’re in your truck to look at truck dealers around your town, around your city, around the country, wherever you’re driving, look at truck dealers ships, and you will be amazed. Just like I have been that there is almost no inventory on the truck dealer. Lots. The amount of empty parking spaces will amaze you. Like it has me. I bet there is a reduction of 50% inventory. It’s like one F150, five empty parking spots, another F-150. And we can remember literally just two or three weeks ago when they were full. Why the electronic chip shortage is real. That’s the hot topic for today and how, why did it happen? What are we going to do about it?

Projections for 2021 During A Chip Shortage

What can we project for the remainder of 2021? So let’s get into it a little bit of data. I love data on our hot topics. I hope that these aren’t just opinions that we’re pushing out into the marketplace, but that they’re actually data driven thought processes. So here’s the data yesterday. Today is Thursday. Yesterday, Wednesday Ford motor company announced more downtime at five factories due to the global semiconductor shortage. These factories will be now down, not producing vehicles until May 10th in an effort to find chips, to put in the trucks. Now we’re talking about F-150 is in Ford motor company here, but it’s the same thing for all the manufacturers. It doesn’t matter whether it’s a Peterbilt or a Volvo or a Mack. They’re all struggling to find ships. Class eight manufacturers have thousands of half built trucks parked at their facilities. They can’t get chips to finish the production. By the way, just on a side note there on average, there are 17 electronic chips in a big rig.

How Did The Chip Shortage Happen?

So why did this happen? Well, when the pandemic hit, let’s call it mid March of 2020, a little over a year ago, everyone thought the sky was gonna fall and the economy was going to collapse. So the truck manufacturers put their chip orders on hold while the chip manufacturers can’t just go out of business. So they pivoted their processes and started making other types of chips, medical device, chips, et cetera, electronic chips for phones and stuff that don’t work in trucks. Well, when the pandemic really didn’t hit transportation, as hard as everyone thought it would remember, people went home, quarantined, God stimulus checks went to Amazon bought stuff, and all of that stuff had to be delivered on vehicles and trucks.

Stimulus Economy Boosted Transportation

People went out and bought more vehicles. So the manufacturers said, Oh, we made a mistake. We overreacted. Now we got to get chips. And the manufacturer said, hang on a minute, fellas, we pivoted, we heard you and said, you don’t want our chips for your trucks anymore. So guess what? We started making other chips, which by the way, they started making chips that are more profitable for them. So this shift back to the less profitable truck chips is going to even be slower. That’s why it happened. And now we have a simple supply and demand situation happening happening. The class eight market is on a tear. As far as orders go. Some estimates say that we may have over 500,000 class, eight trucks ordered in 2021. Now, when I started in this business of truck financing, 25 year, 26 years ago, now a great year was 180,000 trucks. And I remember when it went to like 220,000 trucks in one year, and we thought that was unbelievable. Well, the estimates for 2021 could be North of 500,000 orders.

What Does This Mean For Fleet Owners?

We will give you just an example. Class, a truck orders are up 424% in March over March, 2020 in March of 2021. So year over year, March to March 2020, 2021 is an increase of 424% in the orders. It’s screaming. It’s unbelievable. This is a massive year for class eight truck orders. However, the delays in the chips are going to continue. It will continue through the remainder of Q2 this quarter and into Q3 and will continue to be a problem. Use truck prices are going to continue to go up. In fact, they’re going to soar. So what does this mean for you as an operator? It means that your trade cycles are going to go longer, whether you’re a small fleet of medium-sized fleet or a large fleet, your ability to place an order, get it delivered, take delivery, trade in your used vehicles and get running again with new equipment is going to become interrupted.

So we’ve got to think about that. So what happens, it means your used trucks will end up selling for more. Your new trucks will be delayed and therefore you have to run your older trucks longer, which means repairs and maintenance could creep up on you and could cause you a surprise. It could radically change your budget. What you had budgeted for repairs and maintenance because you planned on turning your vehicles at say 450,000 miles. You may now need to keep those to 550,000 and something may happen, especially if the warranty wears out or it goes away at 500,000 miles. So we’ve got to keep that into play.

Get Your Orders Placed For Trucks, Trailers, And Equipment

Bottom line is so simple, but real number one, place your orders for new trucks get into the order. Banks, get a position in place, hold onto your old trucks. Don’t sell those yet just because you think they might be coming at your new truck. Your replacement truck is coming in. It’s going to be delayed and buckle your seat belts. Folks. This electronic chip issue is real. It’s happening. It’s visual. It’s how we’re having conversations every day in our office with our clients and our dealers about this problem. And it’s not going to go away for at least two more quarters.

Keep tuning in at CFF-TV. We’re just getting started.

We’ll see you down the road.

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About Commercial Fleet Financing, Inc.:

At Commercial Fleet Financing (CFF), our pros have given smart advice to fleet owners and owner-operators in the transportation, moving, towing or construction industries for more than two decades. With CFF, finding the right financing solutions is a phone call away and most borrowers secure commercial vehicle financing with ease. To talk directly with one of our finance pros and get started with credit approval in as little as two hours, CFF’s phone number is (469) 281-2962.