INDUSTRY OUTLOOK IMPROVES, BUT STILL FAR FROM NORMAL
Recently, the Association of Equipment Manufacturers (AEM) in the US conducted its second survey of member company executives, mainly presidents,
CEOS, and owners, on the continued impact of the COVID-19 pandemic on equipment manufacturers. The 102 respondents weighed in on the effects on the economy, the industry, their companies, supply chain and manufacturing operations, and their financial expectations.
The respondents continue to overwhelmingly agree on the same three challenges with respect to the COVID-19 pandemic: the financial impact on the business, including effects on results of operations, future periods, and liquidity and capital resources, employee health and wellbeing, and cancelled or delayed orders.
Compared with the results of the first survey conducted in April 2020, most metrics have improved. Three quarters (74%) of respondents said that the impact of the COVID-19 pandemic on the overall economy is very negative (compared to 91% in April). Their outlook on the impact on the industry and individual manufacturers is improving, but just 47% still said the impact on the industry is very negative (down from 56% in April), while 28% said that the impact on individual companies is very negative (compared to 42% in April). The outlook on supply chains and manufacturing operations remains negative. Six out of 10 (62%) of respondents surveyed said the impact on their supply chain is moderately negative (down from 68% in April), while 61% said the impact on manufacturing operations is moderately negative (compared to 65% in April). Nearly 88% of respondents said that the impact on sales is either moderately negative or very negative (compared to 93% in April). Looking ahead to the rest of the year, 61% said it will improve (compared to 58% in April).
More than 36% said they have furloughed up to half of their employees, while almost 8% of respondents indicated that they have furloughed at least half of their employees. Roughly 18% of respondents said they have laid off as much as 10% of their workforce.
For the equipment manufacturers who have furloughed workers, nearly 31% indicated that they would not bring anyone back to work, while almost 38% said they plan to bring all furloughed employees back to work. The picture is even more grim for those equipment manufacturers who laid off workers as a result of the COVID-19 pandemic, with 81% respondents saying that they will not rehire workers. A clear majority (59%) of respondents said that the equipment manufacturing sector is not getting the support it needs from the federal government.
According to IHS Markit, global commercial vehicle production (GVW 4-8) volumes in
2020 compared to 2019 are forecast to be down 22% (more than 650,000 units) to 2.6 million units, in the wake of the COVID-19 pandemic. IHS Markit expects the intense phase of the health crisis to pass by year’s end, opening the window for trucking to resume its business. This means that even though monthly production volumes in the coming quarters may dip below the levels seen during the last recession in 2009 in some regions, overall, annual figures are still expected to be higher than 2009 totals.
S&P estimates that the global sales of heavy-duty trucks will decline by 20%-30% in 2020, to about 1.7 million units from 2.3 million in 2019, followed by a sales recovery of up to 10% in 2021. Currently, global truck manufacturers are testing their production and supply chains, and have either already started to gradually reopen plants, or expect to do so. Nevertheless, S&P expects intense credit pressures ahead for truck makers and potential government stimulus packages and central banks’ action to facilitate access to funding will only partially relieve these pressures.