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Published in Manufacturing

Auto industry finds optimism in the future, but not yet this year

BY Friday, August 14, 2020 04:31am

Automotive industry professionals don’t see much reason for optimism in the near future, but their outlooks become more bullish as time moves on.

This was one of the key takeaways from a recent survey jointly conducted by Detroit-based law firm Dykema, automotive and mobility association MICHauto and economic development firm The Right Place Inc. The survey included interviews with automotive executives, professionals and service providers in addition to non-automotive manufacturers to gauge their outlook on the United States economy during the COVID-19 pandemic.

The automotive respondents of the survey included OEMs, Tier 1 and Tier 2 suppliers, and vendors of technology and other products to the industry.

In the short term, these auto industry players do not have much optimism. In fact, 54 percent had a negative outlook on the economy’s performance over the next 12 months.

However, 24 months from now, 46 percent of automotive respondents had a positive outlook, 41 percent had a neutral outlook with just 13 percent having a negative outlook. 

These sentiments reflected their anticipation of supply chain orders. In the next six months, 45 percent of auto respondents expect orders to decrease while 34 percent expected them to increase. Twelve months out, 18 percent expected them to decrease and 46 percent think they will increase. Finally, 21 months from now, 71 percent expect to see an increase in orders.

The survey also took a look at how quickly and easily automotive suppliers were able to fire back up after 84 percent of respondents reported having to shut down operations during the pandemic.

Upon restarting, just 20 percent of auto respondents reported having to stop or curtail their operations once again, indicating the industry-wide reopening went off fairly well, given the circumstances.

“The survey showed that the restarting of the entire industry went relatively smoothly,” Laura Baucus, attorney for Dykema and leader of the firm’s COVID-19 task force, told MiBiz. “In order for that to happen, the OEMs, Tier 1 and Tier 2s all the way down the line had to work cooperatively. For the most part, that is what we have seen from an outside counsel perspective.”

Federal programs also proved popular among auto industry respondents with half of them utilizing Paycheck Protection Program (PPP) loans, 16 percent turning to employee retention credits and 10 percent leveraging an Emergency Income Disaster Loan (EIDL).

“You can see what a dramatic impact the PPP loans had on the auto industry as well as really all industries, especially middle market industries,” said Thomas Vaughn, a corporate finance attorney at Dykema. “There is no question that makes a difference. As you recall in 2009 (on the heels of the recession), the auto (manufacturers) had to basically fight to get support and it was only at the OEM level. Absolutely, government stimulus has made a big difference this time around in terms of being able to survive through to the other side of COVID-19.”

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EDITOR’S NOTE: For more information and insight into pressing issues and trends in the automotive industry during the COVID-19 pandemic, pick up MiBiz’s upcoming issue, which features a focus section on the auto supply chain. 

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