Securing Suppliers Solvency

As the pandemic brought challenging conditions for the automotive supply chain, actions should be taken and best practices ought to be followed to secure long-term financial stability. Alicia Masse, Principal Advisor at GlassRatner Capital Group, discussed the financial outlook of the automotive industry in North America, as well as strategies to secure liquidity during the webinar: "Leadership Tools to Successfully Navigate Uncertain Times."

Masse highlighted what the industry has learned from the 2009 financial crisis. “We were in the 20-million-unit range for five years. What that means for the industry is that there is opportunity to put money into rainy day funds. The automotive industry learned a lot from 2008-2009. As we entered COVID-19, we saw a drop in operations similar to what we had in 2009,” she mentioned. Reviewing the figures, North American light-vehicle sales emerged from the financial recession and grew by an annual average of 9 percent over a six-year period from 2009 to 2015. “Volumes remained stable from 2015-2019 and stayed healthy in 2020 before the pandemic," she said.

The demand for new vehicles that is missing in North America belongs to fleet purchasers and rental fleets. According to Masse, fleet sales declined significantly in April and May. Data shows a continuing streak of significant monthly declines since the pandemic. The rental fleet segment is experiencing the most significant drop as travel ground to a halt for approximately eight weeks and is expected to recover at a gradual pace for the rest of 2020. “We will not reach pre-COVID-19 production levels because fleets are not certain about when they are coming back,” Masse said.

A key difference between 2009 and 2020 is how ready companies were in terms of liquidity and the region’s economic performance. “By the time COVID-19 impacted the region, the three North American economies were performing strongly. There was also a lot of access to liquidity in the supply chain. There was cash in the balance sheet and people were accessing that liquidity. But as the lockdown went on for weeks in the US, companies began to feel the effects of the pandemic,” said Masse.

“Suppliers should be very disciplined about understanding their liquidity. There is a standard in the industry where you do a 13-week cashflow update every week to make sure that earnings are close to the forecasts. This gives you a 90-day outlook to be able to implement actions in that period to manage your liquidity,” said Masse.

As USMCA will foster supply chain regionalization, acquisitions and mergers will eventually take place, according to Masse. "We will see more consolidation within this period. The reason is that the capacity that is out there is actually needed capacity. It cannot be taken out of the industry at this point. We will see companies that were not in a strong enough position that will be purchased, especially the ones with a strategic location,” she said.

Download the webinar's presentation here: https://bit.ly/39srzew