Industry Outlook: Manufacturing
Manufacturing caught in crosshairs of global trade tensions
INSIGHT ARTICLE |
As risks for a global economic slowdown continue to rise, trade tensions, supply chain volatility, slowing job growth and a tight labor market will remain challenges for manufacturers in 2020. This will require organizations to develop innovative strategies that allow them to thrive in today’s competitive landscape.
The recent trend has been clear: The U.S. manufacturing sector contracted for the third straight month in October, according to data from Institute for Supply Management, marking only a slight increase from a 10-year low registered in September 2019. This is consistent with the performance of the RSM US Manufacturing Outlook Index, which has been declining for 15 months since its peak in June 2018, and has been negative since December 2018. Performance of the index suggests the potential for a continued decline in U.S. manufacturing sales in the months ahead.
Global auto deceleration continues
Softness in the auto industry ripples across the economy more than some other sectors because of the wide array of industries involved in automakers’ supply chains, such as steel and glass manufacturers.
U.S. light vehicle sales have been fairly steady over the past couple of years, but sales in the United States are expected to experience a steady decline, from 17.2 million vehicles in 2018 to 17.0 million in 2019, 16.6 million in 2020 and 16.5 million in 2021, according to the Original Equipment Suppliers Association. We expect this to soften because of increasing monthly auto loan payments, decreasing growth in incentives offered by auto dealers and manufacturers, as well as a shift toward used car purchases as a result of the growing unaffordability of new vehicles.
The same OESA outlook noted that global sales are projected to increase by 150,000 units from 2018 to reach 94.8 million units in 2019, with North America sales decreasing around 2%, and sales in Western Europe and Asia increasing around 1%. So while it appears that growth in light vehicle sales will be constrained in the near-term, global sales are projected to reach 109.8 million units by 2026, with much of the growth coming from sales in China and India. Trade risks, though, will remain a key source of uncertainty for auto markets around the globe, especially in China.
How do middle market manufacturers thrive?
Companies that not only weather slowdowns, but also thrive, have thoughtful plans that may include a combination of the following:
- Evaluate flexibility in staffing. It’s difficult to find skilled workers in today’s environment, but manufacturers must have a plan to address their workforce needs during a slowdown.
- Evaluate the supply chain. Companies should consider where they source products, both domestically and internationally, to ensure that costs are appropriate and competitive or new sources can provide efficiencies and savings.
- Evaluate and invest in new technologies. Like other industries, manufacturing is undergoing a digital transformation. Investing in technology now can help ensure that efficiency and productivity remain high and provide your organization with a competitive advantage.
- Enhance the sales strategy. Companies cannot rely on the same sales strategies with the same customers. The current environment creates a great opportunity to evaluate a company’s sales approach, whether it is serving the changing needs of the market and its customers.
The environment in 2020 will continue to be challenging for manufacturers as they try to steer their businesses amid continued political uncertainty and volatility in costs. We expect this uncertainty to remain in the near-term. Organizations will need to increase resilience in their operations and focus on driving greater efficiencies in the core of their portfolios, from adding digital technologies to streamlining and realigning around key markets and customers.