While the COVID-19 pandemic was quick to hit, instantly styming manufacturing throughout Michigan and the country, the bounceback will likely not be as swift.
That’s according to a new report by Southfield-based Harbour Results, a business and operational consulting firm for the manufacturing industry.
The report, which is the second of three installments that will analyze the effects of COVID-19 on the manufacturing industry, not only reported a sizable drop in average revenue from the original 2020 forecast but also highlighted a number of challenges that will make life difficult for shop owners into 2021.
“I think that we bounce back from some of this relatively quickly but then I think we will hit another recessionary period sooner than expected,” said Laurie Harbour, president and CEO of Harbour Results. “Someone has to pay for this $3 trillion that was put into stimulus. You’re going to see data points change over the coming months and years and inflation go up and all these types of things and that’s going to drive a change in our economy.”
Of the more than 250 shops surveyed for the report, which were all back up and running in some capacity, Harbour Results reported a 25 percent drop in revenue on average with a lot of worried shop owners at the helm.
The report showed 35 percent of tool shops and 47 percent of production shops are struggling or concerned about the future.
Shops are facing reduced cash flow as well, with 67 percent of tooling and 56 percent of production shops experiencing payments that are being stretched or negotiated.
Federal funds create false hope
Harbour said the shops with the best likelihood of emerging from the crisis unscathed — and perhaps even thriving on the other side — are those that made adjustments heading into what promised to be a lackluster 2020, and continued to adapt to this significant health and economic event.
“We’ve been warning suppliers for 18 months that we were heading for at least a minor recession and they were not preparing themselves,” Harbour said. “They were kind of still living on this glory of all this growth that we’ve had in the last 11 years. They were not as prepared as they should have been going into 2020 and, as a result, when COVID hit and manufacturing basically shut off — not for everyone, but for many — it was a big hit.”
Federal funding like the Paycheck Protection Program and Economic Injury Disaster Loans have been a welcome lifeline for an overwhelming majority of shops. The report showed a whopping 98 percent applied for money in order to retain staff. However, Harbour said that the money can be a double-edged sword.
“I personally think that federal funding created bad behavior,” she said. “I’m glad we got it, so I’m not saying we shouldn’t have gotten it, but it created bad behavior. Now, everyone just either kept their people on board or are bringing them all back at full levels and I’m afraid when we get six to 12 months out, we will not have returned to full levels and we’ll have to lay off again.”
Harbour guessed that a portion of suppliers will eventually fold because of economic hardships, but that they won’t realize it until months down the line.
The latest report was not all doom and gloom, though.
Harbour Results highlighted opportunities as many companies look to reshore work in an effort to better manage their supply chain and eliminate risk.
In fact, 50 percent of North American tooling shops are quoting on programs historically produced in China, and 34 percent of production shops are increasing North American sourcing, per the report.
Aside from reshoring, the COVID-19 pandemic has driven the need for new manufactured products.
“There’s definitely some new products that have come out as a result of this pandemic,” Harbour said. “Whether it’s new types of (personal protective equipment) or ultraviolet scanning machines that people are putting in plants — those all have to be built.”
“The people out selling and looking for those new opportunities” will thrive, she added. “I say that like it might seem obvious but a lot of people sit back and wait for opportunities to come to them, and that’s not going to work.”
Mike Wall, director of automotive analysis at IHS Markit, also makes a living off gazing into a crystal ball that’s been coated by the vaseline of the COVID-19 pandemic.
While Wall agreed with the high-level assessment of the tool and die industry grappling with the pandemic, he doesn’t think it will be quite as dire.
“To be sure, sales and production will be down significantly this year — although we have already seen some improvement relative to our early post-COVID forecasts — but OEM plants are coming back online and production is ramping back up,” he said. “Tool and die-only shops won’t necessarily feel that benefit other than perhaps final tooling kicking off and being paid for, but those shops that also do part manufacturing and assembly are also seeing business pick up there as well.”
Chad Folkema, owner of Die-Matic Tool and Die Inc. in Wyoming, has seen his business weather the storm quite effectively — even after being shut down for about three weeks during the pandemic.
Folkema, who commands the die design and manufacturing company that supports automotive, appliance and consumer products industries, didn’t believe that his company would come near the forecasted 25 percent drop in revenue.
“When you’re not operating for three weeks, you’re also not paying (many) bills for three weeks. We’ve seen a small drop but sales are up. So, it could be offset by sales.”
Die-Matic has not utilized strategic layoffs — in fact, they’re hiring and have also experienced the reshoring opportunities alluded to in the Harbour Results report.
“There seems to be a lot of work out there,” Folkema said. “I don’t know the scenarios that each of the different shops are dealing with — maybe they don’t have a wide array of customers — but it does seem like there is a lot to quote right now.”
While he acknowledged the potential for hiccups along the way, Folkema was quite bullish on the industry’s ability to rebound quickly.
“A die shop’s crystal ball is usually not more than, say, six months long,” he said. “Will there be work to land in six months? I don’t know — my crystal ball isn’t that good. But right now, today, we’re quoting more than we have in a number of years.”
Harbour’s round of studies will end in August with the final edition, which will analyze manufacturers after presumably months back on the job and a clearer look at the condition of industries like automotive and appliances.
Harbour predicted the study will uncover some pain in the supply base, cash tightening up and profitability worsening. Many companies will have used their PPP money in August, as well.
“I think we’re going to start to see more strain in the industry but also suppliers grabbing on to some neat, cool new projects that came over from low-cost countries,” she said.