Analyze the data for your client company’s industry and answer the following questions.
Grappone Automotive Group
How much have sales in the industry declined in the recession? What’s the worst that has happened in the past?
The lowest the sales decline reached for Graponne was in 2021 even though it wasn’t during a recession. From January to March 2021 sales reached an all time low of -15.7%. During a recession typically sales have declined to -11.8% in April 2008 during the last recession.
Does the industry go into recession before, at the same time, or after the national economy goes into recession? If earlier or later, how many months of difference is there?
Grappone goes into recession before the national economy goes into recession. Although there is little lead time maybe only a few months. Usually sales decline and then immediately when a recession hits GDP dips below 0.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months?
The Industry will see a sales increase before the recessions end and GDP raises above 0. In January 2009 Grappone saw a sales increase by 2.4% while GDP was still -1.2%. Finally in March 2009 GDP was 0.4% while Grappone sales hit a high at 11.3% growth.
How long does the industry typically take to recover from a recession?
Typically it takes between 1-1.5 years for Grappone to recover as they did in from the low in April 2007 to the incline in sales in December 2008.
Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years. How does your company plan for a downturn? |
Our liquidity is a major focus when we are preparing for a downturn as well as our inventory levels. Cash is king in terms of getting through a downturn. You also need great relationships with your lenders – you hope they will stick with you when times get tough. When planning for a downturn GDP is not a good indicator of when the recession will occur due to the fact that the Grappone see’s a downturn in sales prior to a recession is declared and GDP drops below 0. Car companies should look at imports because they are volatile to the car industry and a recession. They should also plan for an overflow of cars on the lot, they should target people with steady salary jobs to sell cars to as well as retired folk in order to keep sales up. Buying cars more sparingly or in stages will allow for a more flexible output. Even in times in good giving people deals will keep them coming back for more even in a recession. And if your company is struggling in a downturn they won’t be so adverse to lend a hand. |
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years. How does your company plan for a downturn? |
The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges. |
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company’s growth prospects for several years. How does your company plan for a downturn? |
Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production. . |