It's not credit crunch that is having an adverse direct impact on midsized U.S. manufacturers, rather it's customer demand.  In a study of CFOs,  Prime Advantage, a buying consortium for midsized industrial manufacturers, announced that 69% of the respondents reported that their companies have not been directly affected by the cost or availability of credit. Only 24% have been affected "somewhat" and only seven percent said they have been affected "very much."

"Less than 10% of our member company CFOs indicated that they have been directly affected by the credit crunch, demonstrating that there are more pressing issues for midsized manufacturers," said Louise O'Sullivan, president, founder and CEO of Prime Advantage. "We believe this is reflective of the overall small and mid-tier manufacturing market, and in particular of the good financial health of Prime Advantage members.  However, our CFOs indicated that their most pressing concern is slowing customer demand, which could be due in part to tighter credit.  An effective federal stimulus that boosts customer demand could mitigate some of their top concerns."

Ninety-three percent of the respondents listed "an inability to measure customer demand" among their top three external concerns, with 76% of respondents citing this as the top concern. Credit markets and interest rates was the second most frequently listed concern, and volatility of the dollar and a new administration and congress tied for the third most frequently listed concern.

The top three internal, company-specific concerns for the CFOs reflect the aforementioned external concerns. The ability to forecast results came in as the top concern among 45% of respondents, and was cited among the top three concerns by 72% of the respondents. The cost of healthcare and supply chain risk was also cited most frequently among the top three concerns. The impact of these concerns is apparent from the 48% who also predicted a decrease in earnings in 2009.

"The uncertainty of current and near-term economic conditions has made it extremely difficult for manufacturers to plan for the future," O'Sullivan said. "Demand, revenue, and margins are shrinking.  In light of this, we are seeing manufacturers leverage strategic sourcing and procurement planning to better improve pricing flexibility. The improved procurement planning benefits that our members enjoy have helped strengthen their balance sheets and better position them to ride out this downturn."

Changes Ahead Likely Include Downsizing and Capital Spending Cuts
Like CFOs in companies large and small, the survey found that there is growing pessimism about the economy among CFOs of midsized industrial manufacturers. Fifty-five percent are more pessimistic about the economy compared to last quarter, and 45% stated that they are more pessimistic about the financial prospects for their company compared to last quarter.

 Many CFOs also expect far-reaching cutbacks, with 62% planning some type of workforce downsizing. Other areas executives are targeting for cutbacks include capital spending (according to 69% of respondents), marketing/advertising budgets (54% of respondents), and IT budgets (48% of respondents).

 

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