KPMG Restart Michigan Auto Series Features Best Practices to Know NowMay 15, 2020
Register for the next series of KPMG programming focused on “Tariff Recovery and Finding Cash Now,” on May 28, June 2, and June 4.
Automotive Operational And Financial Restructure
Philip M. Goy, Director, KPMG
Douglas Olander, MPI Co-Lead, Managing Director, KPMG
As automotive manufacturers prepare to return to work, there are many financial and operational considerations to take into account. New safety, sanitation, and hygiene procedures are all part of the “new normal” for manufacturers as plants begin to reopen after shutting down due to COVID-19. These necessary changes bring added expenses and lower volumes which can result in tight liquidity even if sales demand strengthens. Manufacturers need to not only focus on operational improvement but also assess their balance sheet to find ways improve their cash flow despite the challenging operating environment.
Hands-On Restructuring: In-Plant Cost Reductions And Behavior Change
Keith Updike, Co-Lead, KPMG Manufacturing Performance Improvement CoE
Underperforming plants have always been a costly problem for the automotive industry, which is only magnified as a result of COVID-19. Attacking COGS (cost of goods sold) also means understanding the numerous root causes related to underperformance. Many suppliers struggle with the plant floor operating system, which is now also being fundamentally altered. The turnaround begins with a foundational “blocking and tackling” approach to COGS reduction to offset underperformance, including realigning the behaviors on the floor to the new operating system.
Assessing Liquidity and Potential Business Transfer Repercussions
Phil Goy, Director, Financial Restructuring and Supplier Risk Advisory, KPMG
Florian Matena, Senior Associate, Financial Restructuring and Supplier Risk Advisory, KPMG
Mike Kamsickas, Managing Director, KPMG Operations Center of Excellence
As businesses restart and begin operating in the “new normal,” understanding the unique challenges and strategies of crisis management and business continuity planning is paramount. This includes monitoring and managing cash flow and liquidity. Significant operational and financial strategies need to be implemented, including overhead and other cost reduction initiatives, footprint consolidation, and logistics and distribution streamlining. Simultaneously there is an increased need to understand the status of the supply chain, to identify critical and stressed suppliers, and to find strategic solutions ranging from cost reductions to liquidity support and/or business transfer.
How Manufacturers Can Understand Liquidity Amid COVID-19
Automotive manufacturers have multiple factors to consider and carefully plan as they prepare to resume operations. Understanding how to navigate pressure on cash and liquidity is a critical step.
In a Detroit Regional Chamber Restart Michigan Webinar, KPMG experts shared how manufacturers need to assess their balance sheet on ways to improve cash flow despite the increasingly challenging operating environment. First, it’s important to understand your own and your suppliers’ liquidity.
Ask the following questions:
- How has the company been funded during the shutdown?
- What do cash and credit availability look like?
- Is any debt due soon?
- How much liquidity is needed to restart in the “new normal”?
- What sources of liquidity remain?
- What is the risk of running out of funds?
The problem is, while demand is reducing along with sales volumes, costs to manufacture are increasing due to increased overhead such as PPE, reduced efficiency due to social distancing, and one-time costs. To address this, manufacturers must manage their capital resources carefully to balance production dynamics.
To position themselves for success, manufacturers should:
- Cut costs and reduce spending on a short-term basis.
- Create a detailed forecast of cash flow and liquidity, taking into account various scenarios considering higher operating costs.
- Use KPIs and data to focus on problem-solving performance degradation.
- Raise the bar of standard work and perform audits of interactions between leadership and plant-floor operators.