German Production systems industry has strongly underestimated crisis
The production systems industry is facing the biggest crisis ever. A new Roland Berger Strategy Consultants study shows that the drastic downturn has come as a surprise for almost the entire industry: In April 2008 90% of the respondents of a major Roland Berger survey among 800 managers shared the opinion that the crisis will be a primarily and limited problem of the finance industry. Most of them expected a regional focus respectively a concentration of the crisis in the USA. Today the figures show that the optimism was not justified: One year later nearly all major export markets of the German production systems industry show declining market developments. The order income of the German production systems industry is down by 40%. And even worse: Critical indicators suggest that the crisis is likely to continue for several more quarters. The Production systems industries are in an unfavorable "sandwich" position: While the order income is collapsing and more and more ongoing orders are cancelled the price pressure is increasing. In sum: Only those companies who actively manage uncertainty and switch to "rescue mode" will overcome the crisis.
"Almost all companies in the Production systems industry have dramatically underestimated the effects of the financial crisis on their business," says Dr. Martin Eisenhut, head of Roland Berger's Competence Center Engineered Products/High Tech. "Not even one year ago 90% of the managers thought the crisis would not affect their business at all. Today, with an order income down by 42% on machinery, we can say that was a clear mistake and almost all companies have communicated drastic restructuring programs." The capacity utilization dropped to an average of 78% in February (October 2008: 89%).
Crisis is likely to continue for several quarters
There are three critical indicators that suggest that the current crisis will not be over soon: First, a high portion of the German production is exported into countries significantly effected by the economic crisis. Secondly, all relevant customer segments show significant drop in production and utilization and last nor least, value chain dynamics within most industries still expose production systems manufacturers in an unfavorable "sandwich position": "While the order income is collapsing and more and more ongoing orders are cancelled the price pressure is nonetheless increasing," Eisenhut says. "Despite differing business dynamics, all relevant segments of production systems are affected." The automotive and automotive supplier industry are particularly suffering: Their production
output in 2009 is expected to be 20% to 25% lower than in 2008 (Plastics: -10% to -15%, Steel and metals: -5% to -20%).
Companies need to be prepared for all possible scenarios
"The further development will depend on many variables like the credit and capital policy from banks, stimulus from investment programs triggered by politics or the effect of governmental aids in China," says Roland Berger Partner Manfred Hader. Therefore the growth rate till 2012 can vary from -10% to +11% depending on the scenario. "In an uncertain situation like this companies must be prepared for the worst," Hader says. "Only those who actively manage uncertainty by preparing management plans for all possible scenarios will overcome the crisis – and even have the chance to benefit from it."
Rescue mode 2009 – Three main priorities for CEOs
"There are three actions every manager in the production systems industry should take immediately," says Eisenhut: "Ensure short term liquidity, restructure operations and benefit from the market consolidation." Intense discussions with customers and banks help to secure the financing. A constant check of revenue planning (by product line) from 2009-2011 should lead to counter measures for all scenarios – even the seemingly unthinkable worst case. "Those companies that are ready to immediately react on every development will be able to take the chances of the crisis – and to proactively screen for potential acquisition targets," Eisenhut adds.
"Almost all companies in the Production systems industry have dramatically underestimated the effects of the financial crisis on their business," says Dr. Martin Eisenhut, head of Roland Berger's Competence Center Engineered Products/High Tech. "Not even one year ago 90% of the managers thought the crisis would not affect their business at all. Today, with an order income down by 42% on machinery, we can say that was a clear mistake and almost all companies have communicated drastic restructuring programs." The capacity utilization dropped to an average of 78% in February (October 2008: 89%).
Crisis is likely to continue for several quarters
There are three critical indicators that suggest that the current crisis will not be over soon: First, a high portion of the German production is exported into countries significantly effected by the economic crisis. Secondly, all relevant customer segments show significant drop in production and utilization and last nor least, value chain dynamics within most industries still expose production systems manufacturers in an unfavorable "sandwich position": "While the order income is collapsing and more and more ongoing orders are cancelled the price pressure is nonetheless increasing," Eisenhut says. "Despite differing business dynamics, all relevant segments of production systems are affected." The automotive and automotive supplier industry are particularly suffering: Their production
output in 2009 is expected to be 20% to 25% lower than in 2008 (Plastics: -10% to -15%, Steel and metals: -5% to -20%).
Companies need to be prepared for all possible scenarios
"The further development will depend on many variables like the credit and capital policy from banks, stimulus from investment programs triggered by politics or the effect of governmental aids in China," says Roland Berger Partner Manfred Hader. Therefore the growth rate till 2012 can vary from -10% to +11% depending on the scenario. "In an uncertain situation like this companies must be prepared for the worst," Hader says. "Only those who actively manage uncertainty by preparing management plans for all possible scenarios will overcome the crisis – and even have the chance to benefit from it."
Rescue mode 2009 – Three main priorities for CEOs
"There are three actions every manager in the production systems industry should take immediately," says Eisenhut: "Ensure short term liquidity, restructure operations and benefit from the market consolidation." Intense discussions with customers and banks help to secure the financing. A constant check of revenue planning (by product line) from 2009-2011 should lead to counter measures for all scenarios – even the seemingly unthinkable worst case. "Those companies that are ready to immediately react on every development will be able to take the chances of the crisis – and to proactively screen for potential acquisition targets," Eisenhut adds.
