COVID-19 has profoundly impacted business. The combination of stay-at-home orders, forced business closures, and fear of virus transmission meant some businesses had to cease operations entirely while others were tasked with challenging modifications to comply with state and local regulations. All of these changes resulted in the need to make difficult decisions about expenses, employees, and vendor relationships. While Congress acted quickly and enacted multiple relief measures, many businesses – including those in the manufacturing industry – are concerned about future demand. According to the COVID-19 Survey conducted from May 12 to May 15, 2020, by the Precision Metalforming Association, 51% of manufacturing companies report demand at well below normal, while only 6% are operating at a pre-COVID-19 pace. The survey responses reflect just how deeply manufacturing companies are being impacted. For your convenience, Clayton & McKervey offers a summary of the key findings below.
Key COVID-19 Manufacturing Insights
- Changes in Demand – The survey wanted to understand how COVID-19 is affecting demand among non-medical supplier manufacturers. It’s clear the demand for manufacturing services has dropped significantly in the past three months with little sign an increase is on the horizon. According to the report, 7% are actively receiving new orders at pre-COVID-19 levels; 31% are receiving orders but at lower levels; 51% are receiving new orders, but well below normal levels; 7% have received no new orders but are working through backlogs, and 3% are having employees work on maintenance and repair due to lack of orders.
- Operational Level – Given the decrease in orders and demand, the survey wanted to understand the operational level of various shops. According to the report, only 26percent of respondents are fully operational; 20 percent are at 90% of normal operations; twenty-five percent are at 70% – 89% of normal operations; fifteen percent are at 50% – 69% of normal operations; and twelve percent are at 25% – 49% of normal operations. It is interesting to note than only three percent are operating with a skeleton crew.
- Expected Length of Disruptions – For those companies experiencing customer disruptions, the survey wanted to understand how long it is expected these conditions will continue. According to the survey, 2% expect disruptions to last for one week; 3% expect two weeks; 5% expect fifteen to thirty days; 30% expect sixty days; 17% expect ninety days; 20% expect 6 months; and finally, 8% expect disruptions to continue for one year.
- Extension of Payment Terms – Given the current state of the economy, it is likely customers will ask for extended or modified payment terms. According to the survey, 53% of respondents have received requests for extended terms while 47% have not received any term changes.
- PPP Loan Status – The Paycheck Protection Program (PPP) is a popular low-interest loan option available to help fund payroll and other expenses. The survey found that a whopping 92% of respondents had applied and received loan funds, while only 3% were unable to qualify for the loan. This means that manufacturing companies are heavily relying on outside funding to keep operations intact until more robust order activity resumes.
- Employee Retention – PPP funds are definitely helping to retain employees and manage other qualified expenses. 83% of respondents would have been forced to furlough employees if they had not received the loan, while only 9% would not need to have made changes. It was also found that 41% of respondents will have to let employees go if demand does not return by the time funds run out. Only 21% are confident they can maintain current staffing levels after the funds are exhausted.
The survey findings reveal just how much the manufacturing industry has been impacted by the COVID-19 emergency. While it appears PPP loans have helped many retain employees during the downturn, there are certain to be issued once funds are exhausted. If you have questions about the survey findings or need assistance with a COVID-19 business or tax issue, Clayton & McKervey can help. For additional information, please call us at 248-208-8860 or click here to contact us. We look forward to speaking with you soon.
The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.