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?
For the company Grappone, sales in the industry decline rapidly shortly before, and during our session, and increase drastically shortly after our session. The worse that it has been in the past Was in 2005 when it dropped to -12.5% growth rate.
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?
For the industry Grappone it seems that the auto industry goes into a recession at the same time as the national economy. This shows that car sales are a direct correlation with the national economy.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months?
The company Grappone recovers before the national economy. For example in 2009 The recession lasted until June, but Grappone managed to recover as early as March.
How long does the industry typically take to recover from a recession?
The auto industry recovers Almost instantly, or even before the national economy does.
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. |