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Manufacturing Confronts a Long, Hard Slog Because of COVID-19

Bill Koenig
By Bill Koenig Senior Editor, SME Media

COMMENTARY

Manufacturing faces a long march up a steep hill because of the novel coronavirus (COVID-19).

“There’s been nothing like this,” said Timothy R. Fiore, chair of the Institute for Supply Management’s Manufacturing Business Research Committee.

The best comparison Fiore said he could think of was the end of 1945. With World War II over, wartime production of tanks and aircraft ended and “they turned the lights off.” Industry faced a sudden adjustment to a peacetime economy again.

ISM, Tempe, Ariz., produces a closely watched manufacturing index, known as the PMI. The index indicated contraction during March when the manufacturing economy was slammed by COVID 19.

Many factories ceased production as people remained home to slow the spread of the coronavirus. The U.S. death toll from COVID-19 may reach as high as 240,000 even with mitigation efforts.

“Everybody’s concerned,” Fiore said in a telephone interview.

In terms of the economics of manufacturing, he said, “There’s no revenue. That’s a lot of uncertainty. It’s not going to be a V-shaped” recovery.

V shape refers to a quick economic recovery following a recession.

There were indications of how this recovery won’t be a fast one.

Ford Motor Co. had planned to restart factories this month. On March 31, the Dearborn, Mich.-based automaker called off that plan. It provided no new date. Ford said it’s developing additional health and safety procedures to be deployed at factories.

Automakers also reported first-quarter light-vehicle deliveries this week. Sales were down, with the biggest hits taking place in March as some states and cities put stay at home orders into effect. Millions of people filed claims for unemployment benefits after being laid off because of COVID-19.

“This bodes poorly for sales in April and the downside risks to calendar-year 2020 sales volume remain prevalent,” Chris Hopson, IHS Market manager of North America light vehicle sales forecasting, said in an email.

FCA US, the U.S. unit of Fiat Chrysler Automobiles, responded by introducing new incentive plans, including an offer of 0 percent,  84-month loans on some models. Again, no-interest loans lasting seven years. That kind of incentive plan isn’t used unless things are serious.

Consulting firm PwC is conducting surveys of financial executives about the coronavirus every two weeks. In its first such survey, 90 percent of respondents said business would be back to normal within three months if COVID-19 ended immediately. In the second survey, the figure was down to 76 percent.

“The realization that the effects of the outbreak aren’t going away quickly is settling in,” PwC said in a summary of the findings.

What’s more, 80 percent of respondents said COVID-19 will decrease revenue and profits of their companies. That was up from 58 percent in the first survey.

“The potential for the outbreak to lead to a global economic downturn remains the top concern,” PwC said.

Manufacturing already was under financial pressure before the COVID-19 outbreak. ISM’s manufacturing index showed economic contraction during the last five months of 2019. The index is based on a survey of purchasing and supply executives in 18 industries.

The group initially forecast a return to economic expansion this year. That was before COVID-19. The manufacturing index now has indicated economic contraction in manufacturing for six of the past eight months.

The pandemic is having an impact on all of society. That includes manufacturing, now combating both COVID-19 (by stepping up efforts to produce medical supplies and devices) and the financial strains because of the disease.

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