Global credit crunch equals sea change for Canadian Manufacturing

TORONTO, ON, November 19, 2008

The credit crunch that has hit global markets will have its greatest impact on the manufacturing sector in Canada—an impact that will be devastating to certain industries.

According to Grant Thornton LLP manufacturing sector leader Jim Copeland, the credit crunch and the US economic downturn could well result in a dramatic slowdown for the Canadian manufacturing sector.

Copeland said, “Manufacturing is a primary industry focus for Grant Thornton, and over the past several years our research has reported a struggle to diversify Canadian manufacturers’ order books that have been too heavily weighted on the US market. We also saw the risks of this dependence, but no one could have predicted the extent of the crisis south of the border and its global repercussions.” He added, “You only have to look at the upheaval occurring in the automotive industry to appreciate the alarming degree to which our two economies have become almost inextricably coupled”.

Order books that have contracted abruptly and seemingly overnight, due to changing business conditions, have put a significant portion of Canada’s GDP at risk. Copeland stated, “The changes are presenting new and exceptional management challenges. As recently as three months ago, manufacturers had full order books that have now deteriorated as a result of several factors related to the credit crunch in the US: customers’ inability to obtain adequate financing, suppliers’ restricted access to credit, the slowdown in the US economy, and the collapse in consumer confidence.” He added, “Although the Canadian financial landscape has been insulated, at least partially, due to the risk management practices of our banks and banking regulation, the situation in the US has caused changes in business conditions for Canadian manufactures that have been both rapid and dramatic.”

According to Statistics Canada, the manufacturing sector in August 2008 represented 14.5% of the national GDP or $178 billion dollars. “When you consider the size of this sector, its significance can’t be overestimated. And the impact of having this much of our GDP at risk can’t be underestimated,” Copeland said.

“There’s no magic bullet solution for the market conditions.” Copeland continued, “The remedy involves all of the basics of sound business management. We have been stressing the importance of productivity and innovation for many years. This has added significance in a market like we have today.”

Copeland pointed out that for several years, including much of 2008, there have been surveys—most notably by the CME—that indicated shortages of skilled labour. This may become less of an issue with an economy that is slowing down. “In recent years, improving productivity, processes and efficiency has often meant finding ways to do more with less because of the squeeze in skilled labour.” He continued, “Now it means batten down the hatches and instil rigour and discipline across your business. Regardless of the means, a significant opportunity for improvement continues to exist.”
He is advising that it is not a time to panic but instead to prepare for the challenging days ahead. “Although cost cutting will undoubtedly be top-of-mind, sound strategic decisions must be made. Companies need to step back and be strategic about what they cut and what they maintain. For example, now is likely not the time to substantially curtail marketing expenditures as you fight to maintain market share in preparation for an inevitable recovery. The key to ensuring continued business success has not changed . . . operate with a sound and realistic business plan that takes the current economic reality into account."

Grant Thornton LLP has published a practical guide for businesses navigating the credit crunch. The Credit Crunch: a practical guide addresses 10 core business activities that businesses should consider to manage through this difficult time, including cash flow considerations, evaluation of both customers and suppliers and reassessment of capital investment plans.

The guide is available free of charge on-line at: www.GrantThornton.ca/insights.

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For further information or to arrange an interview please contact:
Jim Copeland, CA, CMC
T (902) 690-2016
E jcopeland@GrantThornton.ca  

Notes to editors:

About Grant Thornton in Canada
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton has more than 3,100 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member and correspondent firms operate in over 100 countries worldwide.