Surveys show trailer industry getting optimistic, with 78% expecting sales to increase in 2010
May 1, 2010 12:00 PM, By Rick Weber
REPRESENTATIVES from RSM McGladrey Inc gave an update on the trailer industry entitled, “The Good, The Bad, and The Ugly!” Fortunately for attendees, it was mostly good.
Director Dale Billet, managing director Tim Koch, and manager Sam Reschly said results gleaned from surveys and from 130 clients in the trailer industry indicate that people are moving away from a pessimistic view and have a somewhat positive view for 2010.
There were fewer competitors in the marketplace, but also fewer dealers, meaning that in the next year, “there will be a lot of fighting for the dealers that are left, and manufacturers will decrease their prices,” according to Koch. There were leaner operations, with reduced inventory levels (manufacturing and retail), head counts (including cutting valuable employees), and benefits, but because the best employees were left and they were all happy to have a job, there was improved throughput.
Koch said the first quarter of 2010 has seen increased sales and a better climate.
“There's increased foot traffic at the dealer level and lending institutions are beginning to open up credit,” he said. “There has been a positive financial performance, whether that's net income or however you choose to measure it. If you've done what you should do to control costs, as volume goes up, if you haven't adjusted your cost structure back up, your margins go up and you should be able to turn a bit of a profit. There are leaner operations, with reduced overhead and increased volume.”
McGladrey's surveys showed that 78% expect sales to increase in 2010, with just 8% expecting a decrease and 14% no change. Eighty-four percent of respondents are greatly or somewhat relying on increased product offerings, 90% are greatly or somewhat relying on increased volume to existing dealers, 42% are greatly or somewhat relying on increased volume to international customers, and 100% are greatly or somewhat relying on acquiring new customers.
“So this gets back to what we expect to happen in the next year with the dealer base: If you're out trying to get new customers, people are in talking to your dealers,” Koch said. “The cycle continues. Expect to see that it will be kind of a dealer market over the next 12 months.”
Foreign search for materials
Billet said there was a sharp decrease in inventory levels, with many companies dropping by 50%. Their survey said 70% are using foreign sources to supply inventory, competing against just-in-time inventory models and requiring longer lead times and prepayment. Approximately 50% source at least one-quarter of their raw materials from foreign sources.
“People are seeing that there are cost savings to go international,” Billet said. “The low-cost area may have been China in the past. I see people moving to Mexico because the cost structure is going up in China.”
About 70% have implemented lean principles in some capacity. The following have plans to improve specific supply chains in 2010: sales process management, 32%; product development, 52%; manufacturing flow, 47%; demand planning, 37%; customer-relationship management, 63%; and supplier-relationship management, 58%.
Asked if there was still room to reduce inventory levels in 2010, 26% will reduce levels by up to 20%; 16% will reduce levels by greater than 20%; and 58% will not reduce levels.
“There's certainly optimism on being able to reduce inventory,” Billet said. “That is somewhat surprising, given the amount of inventory reduction you had over the past year.”
On key supply chains, 53% indicated a high risk of transportation disruption and 48% indicated a high risk of supplier disruption.
“As this thing starts to ramp up, if suppliers have cut back significantly, are they going to be able to ramp up production at the level you need?” he said. “So you may have some disruptions just because they can't react quickly enough if you start to see an upturn.”
He said health care remains a large component of a company's cost structure, with 72% fully insured, 17% partially self-funded, and 11% who do not offer health insurance. Fifty percent see health costs increasing by at least 10% or more in 2010.
Rising costs are a huge concern, with 58% expecting increases in energy; 74% raw materials; 69% operating labor; and 48% freight.
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