Will Your Company Survive the Next Recession?

BY: SHELLY STOBIERSKI

A hard life lesson everyone has had to learn at one point or another is that all good things must come to an end. This is an especially difficult lesson to learn when it comes to the economy, but one that Michigan manufacturers may soon be faced with.

After a decade of economic expansion, and with unemployment reaching a 50-year low, it has now become a waiting game to see when this period of economic prosperity will finally begin to slow. And with recent announcements by Ford and GM about plant closures and layoffs signaling a shift in demand, this could mean a recession is closer than we think.

With an impending recession just around the corner, it’s time for Michigan manufacturers – especially those involved in the automotive industry – to face some difficult facts. Many unpredictable factors, such as tariffs and an incoming wave of new government leaders, are expected to impact the industry in the coming months, whether positively or negatively.

Some factors have already started to slow down automotive production, including:

• Ongoing changes to the CAFE (Corporate Average Fuel Economy) standards, which largely impact the market overall
• Public transportation and mobility becoming more prevalent across the nation, decreasing the need for personal vehicles
• Increased life expectancy of cars due to improvements in quality, resulting in fewer vehicles being sold over time

These challenges should come as no surprise to manufacturers. Many market analysts have been anticipating a slowdown in production for years. With the economic downturn in Michigan already starting to be seen in several industries, time may be running out for manufacturers to safeguard their companies from another recession. That being said, how can manufacturers ensure 2019 isn’t a repeat of the 2008-2010 slump?

Diversification. For manufacturers who are heavily involved in the automotive industry, with most of their revenue generated from supplying OEMs or Tier I suppliers, now is the time to diversify. As the market enters another cycle of decreased productivity and demand, diversifying is the key to making your company more resilient to change and more stable in the years to come, regardless of the current economic state.

Some might argue this is unnecessary, claiming the automotive industry will be able to sustain them into the future. However, we can look back at the 2008-2010 recession, when countless automotive suppliers throughout Michigan and the U.S. went out of business or had to restructure, as an example of what could happen if your company fails to diversify.

To prevent this from happening to your business, manufacturers must get ahead of the predicted recession and prepare in one of three ways:

• Supply existing products to new industries. One of the easiest ways to diversify is not to change the products you manufacture, but to instead supply to new industries. Although technically “easier” than other diversification strategies, shifting to supply new industries may still involve a certain level of investment. For example: 
  • Tooling or product design changes may be needed to meet the requirements of other industries, but if you target industries with similar end-use applications, such changes can typically be done quickly and with minimal costs.  
  • Mandated quality certifications, such as ISO 9001 or AS 9100, may need to be achieved in order to supply to certain organizations.
  • Hiring new sales staff with contacts in your target industries and/or retraining existing sales staff will enable you to more quickly prepare a marketing strategy and close new customer sales.​
  • Sales and marketing staff will need to attend trade shows, industry association meetings and other “watering holes” to learn about the industries and network with key decision-makers who will impact your sales goals.
  • Marketing collateral such as websites, social media, brochures and product data sheets will need to be updated with messaging aimed at your new industry and customer targets. You might consider running a coordinated marketing campaign by investing in advertising in targeted industry publications or sponsorships at trade shows.
• Make new products for existing customers. Some manufacturers might find it is most feasible to begin manufacturing new products for existing customers. Building a wider portfolio of product offerings in this way enables manufacturers to essentially cover all their bases and provide more stable revenue into the future. However, product development takes careful planning and focused execution to ensure that the new product launch is successful. With a possible recession in the next few years, it is critical for new product development efforts to get underway now. Most importantly, make sure that you obtain solid and reliable input from existing customers. Understanding what new products are needed and what will be purchased can ensure maximum success and return on investment. 
   
• Grow into new geographic areas. In order to stay successful through the next recession, it might be necessary to expand into new geographic markets. For example, if one country is experiencing a recession, another country’s economy might be booming. By expanding into global markets, manufacturers can set themselves up for more consistent revenue, now and beyond. 

Companies that choose to ignore the warning signs and continue business as usual likely will regret it once the economy takes a downturn. Instead, get ahead of the impending recession and diversify – whether it’s with product type, market or geographic area – while you still have the resources and time to do so.

The Center’s market research experts can help manufacturers diversify and become less vulnerable to external changes in the coming years. To learn more, click here or contact inquiry@the-center.org.


MEET OUR EXPERT

Shelly Stobierski, Director of Research Services
Shelly Stobierski is the Director of Research Services for the Michigan Manufacturing Technology Center. She has more than 15 years of market research experience, the first 10 years with a primary focus on automotive-related manufacturing businesses. Shelly has extensive skills in survey research (phone, internet, focus groups) and in the use of proprietary industry databases. Prior to joining The Center, Shelly spent five years as a research analyst for a turnaround firm conducting secondary research with databases such as LexisNexis, Capital IQ, and IHS Automotive forecasts. That was preceded by seven years working in various levels of project management at leading primary research firms.


Since 1991, the Michigan Manufacturing Technology Center has assisted Michigan’s small and medium-sized businesses to successfully compete and grow. Through personalized services designed to meet the needs of clients, we develop more effective business leaders, drive product and process innovation, promote company-wide operational excellence and foster creative strategies for business growth and greater profitability. Find us at www.the-center.org.