Analyze the data for your client company’s industry and answer the following questions.
How much have sales in the industry declined in the recession? What’s the worst that has happened in the past? The sales in the industry declined at an alarming rate during recession, looking at the economic crash in 2008, the industry sales dropped by 11.8%, while towards the end of the Covid shutdown pandemic it dropped by 15.7%, this was its worst.
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? The chart shows that the industry goes into recession around the same time as recession starts, or is coming to a downturn, it also shows that an incline also occurs in most instances towards the end of the recession for the automotive industry.
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 recovers during the recession, when the recession is coming to a close and the general economy is starting to rise again. It usually is about 2-3 months depending on the severity in the decline of the economy, it can span up to a year though.
How long does the industry typically take to recover from a recession? The general amount of time to recover from the recession is about 9-12 months, depending on how low the market economy goes, it can be shorter, but if the economy doesn’t face a massive economic turmoil, then the recovery is around 2-3 months.
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. |
| 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. |