Us infrastructure – state level analysis of the impact of covid-19

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US INFRASTRUCTURE – STATE LEVEL ANALYSIS OF THE IMPACT OF COVID-19

DuckerFrontier first analyzed the impact of Covid-19 on the infrastructure industry in May in its report US Infrastructure Expected to Fare Well in the Post-Pandemic Environment. Since then, the Building and Construction team has continued to analyze the impact at a state level to help companies continue to determine what’s ahead for the infrastructure sector and how to best navigate.

Pandemic Regional Impact to the Environment

Most every state within the U.S. was affected by Covid-19; however certain areas were less-impacted and therefore not subject to “stay-home” orders. It’s within these states where public works projects continue, deemed an “essential service” despite other infrastructure market segment projects being temporarily halted. Construction teams do remain on-call in case of urgent repairs to ensure little-to-no disruption in services provided.

DuckerFrontier has developed a tool utilizing multiple industry end segment data to further understand those states where infrastructure development has been impacted most. Data analyzed for each state and overall includes but is not limited to:

  • Water and wastewater/sewer funding and spend
  • Infrastructure funding and spend
  • Rainy day fund levels
  • Covid-19 impact

Regionally, the south faired best with its more densely populated areas not impacted nearly as much as those in the Northeast, West or the Great Lakes regions. Additionally, states in this region that did experience a similar number of cases were subject to less restrictions.

Several key states took a varying, but positive approaches to the pandemic. The state of Texas left restrictions to the various city mayors to manage through March 31st; the state opened its retailers, shopping malls and restaurants as of May 1st, however with limited occupancy of 25% to start. California was an early responder, placing the state into “shelter in place” by mid-March; the state has a large financial reserve as compared to others and therefore can manage state projects and needs more effectively. Finally, New York was hit the hardest by Covid-19 and the state was closed in mid-March as well; this state will be heavily impacted compared to others in the short term, however the 2017 Clean Water Infrastructure and Quality Protection Bill coupled with a potential 2020 Water Bill leaves this sector with an incredible opportunity to rebuild and recovery rapidly.

Despite activity in infrastructure continuing in some areas, spending is anticipated to decline overall in the near-term, impacting the transportation segment hardest. However, as mentioned in our first Infrastructure update – US Infrastructure Expected to Fare Well in the Post-Pandemic Environment – we are still anticipating activity within the industry with a continued urge from lawmakers for a federal stimulus boost. A future stimulus Phase 4 package is aimed at infrastructure and construction and, when coupled with low interest rates to secure long-term debt, the industry is well-positioned for rebound.

Leading Segments for Growth

  • Infrastructure spending remains a popular component of future spending bills that will include additional stimulus tied to labor and activity versus budget bail outs at a local level Interest rates help more now to secure long-term debt and create the best environment to spend
  • The government was already planning to shell out trillions of dollars – the Trump administration and congress want a 2 for 1: big spending, give jobs, get infrastructure
  • There will likely be more Public Private Partnerships – to mobilize in certain areas, allow for private job growth, manage funding needs, and innovate. COVID-19 response is paving the way for private/public possibilities
  • While roads will be a big focus, we see great attention and linkage to safety, response for water infrastructure and communications (rural access for 5G, data exchange, etc.)

DuckerFrontier’s Building & Construction team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Preparing your business for the b2b sharing economy in construction

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PREPARING YOUR BUSINESS FOR THE B2B SHARING ECONOMY IN CONSTRUCTION

Since the inception of the “Sharing Economy” by companies like Airbnb and Uber to the successful BlaBlaCar and Getaround (ex. Drivy) in Europe, sharing owned assets has become commonplace for many consumers. This trend is now making headway in B2B markets, particularly in the construction industry. Read Part 1 of this series to learn the impact of the Shared Economy on market players in the construction equipment industry.

The Sharing Economy in the construction equipment industry offers opportunities to market intermediaries by increasing accessibility to the potential market, allowing for fleet optimization, and providing payment certainty. The new model in the B2B sector will likely boost demand by facilitating access to equipment but may also create a contraction of traditional business models. For example, Airbnb facilitated access to temporary housing, but created competition for traditional hotels. Market players should prepare their organizations for these changes. Managing Director of Heavy Equipment in EMEA, Audrey Courant outlined some ideas for construction equipment businesses to consider below:

  • Think customer segmentation. Different customers have different needs and expectations; product and service offerings should be tailored to each customer group. Identify the different segments of your customer base via a cluster analysis, a key element of defining an efficient marketing mix strategy.
  • Understand your customers’ purchasing experience and journey in detail. From information gathering to actual rental experience, detect touch points and pain points for your customers. This will allow you to identify actions that will lead to differentiation, customer base retention, and market growth.
  • Think value-added services to differentiate from traditional competition and online rental platforms: from the ability of offering a full range of products – including green equipment – to consulting services smart site management
  • Develop a tailored digital strategy. In order to maintain the connection with customers throughout the customer experience your company will need an in-depth digital strategy.

DuckerFrontier’s Heavy Equipment team is at the forefront of key trends impacting the industry. Our experts are constantly monitoring changes in the industry to provide clients with the most impactful insights. How can we help you deliver better outcomes for your business? Contact us to connect with an industry expert.

North american automakers and suppliers return to work amidst uncertainty

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NORTH AMERICAN AUTOMAKERS AND SUPPLIERS RETURN TO WORK AMIDST UNCERTAINTY

The Detroit 3 (FCA, Ford, GM) and their international counterparts and suppliers with manufacturing and assembly in North America have started to return to life after a two-month lockdown due to the novel coronavirus (COVID-19). The automakers have redesigned assembly lines and added additional training for autoworkers in an increased effort to avoid additional outbreaks of COVID-19 that could throw off production for a second time. Although plants are coming back online, additional precautions are leading to fewer shifts and slower rate of production, although Ford and others are rumored to be back up to full production ahead of time, which in the near term is exactly what the industry needs to ensure they are making the right models (that consumers want) and not filling up lots with models that will have to be heavily discounted down the road.

As OEMs return to this new “normal” they are seeing that there is no “one size fits all” solution to increase production and demand. Lackluster consumer spending due to rising unemployment and decreased production is causing concerns for automakers as they head into the summer months. Many are relying on government incentives, such as Cash for Clunkers, and other options such as deferred payments and extended payment terms to incentivize consumer spending. According to LMC Automotive, automakers are expected to produce less than thirteen million vehicles in North America, a reduction of over 20% from pre-covid forecast for 2020.

OEMS and particularly their suppliers are in for a bumpy road as we enter uncharted territory for the industry. What we knew about the market, its investments and plans for the future have to be closely monitored and updated to stay relevant. Customer intimacy is key in this environment, with early insights leading to nimble decisions. Fortunately the market was planning for a contraction and had started to incorporate elements for longer term sustainability.

-Abey Abraham, Managing Director, Automotive & Materials

DuckerFrontier’s automotive and materials experts are closely monitoring the impact of COVID-19 on the automotive industry and what the post-pandemic environment will look like. Below are some recent insights and recommendations from our team of experts as the industry begins to reopen:

  • Planning is essential. Plants have had 6 or more weeks to develop their reopening strategy
    • Learn and emulate key success factors from their plants in China (testing, distancing, contact-tracing, etc)
    • How to keep personnel safe while enforcing production safety procedures and efficiency
    • Limit customer options to reduce complexity and line slowdowns, some models have been postponed (Chevrolet Tahoe/Suburban GMC Yukon) to ease the restart and secure sufficient demand for the product launch
  • Prepare for the unexpected. As OEMs get back online, suppliers will need to be patient and be ready for unforeseen changes, including a very slow ramp up
    • Volume projections change on a weekly basis with continuous adjustments to supply and demand
    • Accounts receivable is an essential task and needs to be prioritized to keep the lights on
    • Changes in delivery schedules, processes, and procedures
    • Difficulty with getting employees back to work will require OEMs to become creative with personnel offers such as increased PPE, daycare options, and increase salary/bonus structures
  • Supply chains are only as strong as the weakest link
    • Global supply chains – several countries have not yet given the green light to get back to “normal” – we see this with the startup and rather quick shut-down of a plant in Alabama
    • Manufacturers can face issues sourcing parts and securing the supply chain as states and regions stagger restarts
    • Mexico is expected to trail the U.S. and Canadian markets due to health and sanitary issues impacting the capacity to restart (test availability, social distancing and more)
    • One missing part can bring operations to a stand-still
  • Adjusting resources to needs and technologies in R&D, sales, marketing, and support roles
    • COVID-19 highlighted the need to reassign investments and resources due to a global slowdown in technology introduction (CASE/ACES mobility technologies)
    • New strategies and product plans will impact production plans and factory programs in the upcoming months and years
    • Cancelled programs (Lincoln “Rivian based” EV SUV and Cadillac Lyric EV SUV) will have a long-term impact on production capacity and could lead to redistributing programs or re-evaluating production capacity in the medium- to long-term
  • Accelerating the come-back – near term, monitor and react
    • Dealer inventory is at an all-time low, they are not used to this – the market is low by over 2 million units that should have been produced in the first half of 2020
    • The annual production numbers have changed, and automakers are pulling back on the incentives they used to get consumers and dealers through March, April, and May
    • Product mix driven, pickup trucks, SUVs, and crossovers are driving the surge whereas passenger cars are fighting for their market shares
    • Mexico’s part supply-chain still has not been sorted out completely just yet (still at the peak of the epidemic) and add to that the USMCA Agreement launching in July may add further strain
    • FCA, among other OEMs, for instance has cancelled planned shut-downs on lines producing most of their non-pass car lineup; Warren Truck and Belvidere IL facility will have a minimal shut down to re-tool for the new Jeep Wagoneer and Cherokee respectively
  • Opportunities for automotive suppliers:

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Heavy equipment growth post-pandemic and into 202

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HEAVY EQUIPMENT GROWTH POST-PANDEMIC AND INTO 202

Throughout the nationwide shutdowns due to the novel coronavirus (COVID-19) pandemic, DuckerFrontier has been speaking with heavy equipment dealers and end users to gain insights into the current state of the market and predict where the market is headed post-pandemic. Read Part 1 of this series on the state of the industry before the global shutdown and how heavy equipment is faring today. We expect the heavy equipment industry to emerge from COVID-19 ready for a solid rebound, although the environment will look somewhat different.

Post-Pandemic Heavy Equipment Environment

Once society begins to reopen, there will be a large backlog of work to complete, especially within the residential and commercial construction sectors. The heavy equipment demand is likely to rebound quickly to accommodate increased activity; however, we anticipate some barriers that will limit the market’s ability to quickly normalize.

Many production facilities for equipment as well as components have been shut down. Therefore, a quick rebound in demand may create an equipment shortage. While there will be immediate workload on projects that were contracted prior to the shutdown, consumer confidence may slow new project spend. This, coupled with potential equipment shortages, will leave heavy equipment users seeking alternative routes to acquire equipment. DuckerFrontier is closely monitoring a number of alternative acquisition models including ‘Uber’-type models in which equipment owners provide independent rentals as well as ‘Travelocity’-type models where a third-party matches potential renters with rental providers. Both of these models have been used on a limited basis within the heavy equipment industry. However, the post-pandemic environment will be ripe for growth within this channel.  We expect the equipment rental market to absorb much of this excess demand. This method allows companies to access the equipment needed for current work without accepting the long-term risk of ownership.

Opportunities for Growth Post-Pandemic 

DuckerFrontier predicts that while the market will fall short of initial projections for 2020, this resilient and adaptable market will rebound. Despite the pandemic, the market will likely show modest growth of 3 to 5% over 2019. Customer-centric and adaptable companies will experience the quickest rebound.

The post-pandemic market will look considerably different than that which existed in early January. The most effective strategy for thriving in this new environment will be to fully understand the needs of the customer-base. A detailed assessment of the customers’ journey can help to identify challenges and pitfalls that may be limiting purchases or swaying them to purchase from the competition. Those companies that are best at predicting these needs will have first-mover advantage post-pandemic.

DuckerFrontier’s Heavy Equipment team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with an industry expert.

The global shutdown is slowing, but not stopping the heavy equipment industry

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THE GLOBAL SHUTDOWN IS SLOWING, BUT NOT STOPPING THE HEAVY EQUIPMENT INDUSTRY

Throughout the nationwide shutdowns due to the novel coronavirus (COVID-19) pandemic, DuckerFrontier has been speaking with heavy equipment dealers and end users to gain insights into the current state of the market and predict where the market is headed post-pandemic. The industry’s success before the crisis, and its resiliency and continued operation through the crisis will allow the heavy equipment industry to emerge from COVID-19 ready for a solid rebound, although the environment will look somewhat different.

Prior to the global shutdown

The demand for infrastructure improvement and heavy construction was high despite a wavering global economy. This was spurring a considerable amount of market innovation across four major areas, driving overall growth.

  • Emissions standards: Global manufacturers have now achieved the government-mandated emissions reductions requirements, allowing OEMs to shift their focus to innovations that will make the equipment easier to operate, more efficient and with reduced downtime.
  • Electronics: Electronics continues to be an important aspect of product innovation, with a focus on customer-centricity and end user experience rather than monitoring product health, which often results in information overload.
  • Machine improvements: While many construction companies are paying higher salaries to operators and maintenance staff than ever before, there is a common concern among equipment users that finding qualified staff is increasingly difficult. Therefore, making machinery that is easier to operate and maintain is critically important.
  • Product marketing and merchandising: Innovation activity has also extended to product marketing and merchandising with increased customization, allowing dealers more control over how funds are spent and giving customers a more personalized experience.

During the shutdown

While many segments of construction have been halted across the United States, infrastructure development has continued and has found a “golden opportunity” to operate with fewer cars on streets, bridges and highways. According to a survey conducted by the American Road and Transportation Builders Association, only 21% of construction companies have experienced a DOT project shut down related to COVID-19. This has allowed many within the industry to remain employed, and has spurred a continued need for parts, service and equipment.

Distributors continue to make service professionals available to repair and maintain equipment for those machines in operation. They also report that those that have been forced to shut down are using this time to do time consuming, but necessary, repairs on their equipment. This will allow for consistent performance from the equipment once the stay-at-home orders are lifted.

Opportunities for growth and segments to monitor

The heavy equipment sector has been the most active during the shut-down. Infrastructure spending has continued with companies taking advantage of the reduced traffic levels to make headway on road and bridge projects. It is believed that these large projects that were approved prior to the shut down will be purchasing equipment to finish these jobs. There is some concern that residential construction will take a significant hit due to declines in buyer ability to spend.

Keep an eye out for Part 2 of this series on what the future holds for the heavy equipment industry after the pandemic and into 2021.

DuckerFrontier’s Heavy equipment team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Covid-19’s impact on residential and nonresidential construction and leading segments for growth post pandemic

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COVID-19’S IMPACT ON RESIDENTIAL AND NONRESIDENTIAL CONSTRUCTION AND LEADING SEGMENTS FOR GROWTH POST PANDEMIC

The COVID-19 pandemic interrupted an above-average cyclical transition in the construction industry and changed the demand drivers for recovery. Construction was performing well late into the cycle, experiencing a surge in activity across many sectors in the first quarter of 2020, particularly in the new residential segment. As the pandemic spread to North America, many active projects have been deemed “essential” by government authorities, but new business permits were withheld.

*Editor’s Note –   At DuckerFrontier, our Building & Construction industry experts are constantly in communication with industry participants who report a positive outlook for the construction industry coming out of the COVID-19 pandemic. Managing Principal Chris Fisher shares his latest insights on construction demand following the current recessionary period. Click below to access our latest Building and Construction articles:

DuckerFrontier’s Building & Construction experts have broken down our expectations for residential new construction, residential remodeling, and nonresidential new construction through 2021 and provided insights into the post-pandemic landscape for the industry.

Residential New Construction: We have seen mixed activity in new home construction due to policy differences across states and confusion around “essential” classifications. Builders and contractors are struggling to obtain permits for both new and in-process projects, with few communities offering virtual inspections. Both companies and workers want to remain in operation, though new policy regulations have created uncertainty and often confusion around guidelines.

As states reopened, the mortgage industry still recovering from a five-year low, saw application to purchase homes rise 5% for the week and were a remarkable 33% higher than a year ago, according to the Mortgage Bankers Association’s. This could be a sign of a housing led recovery and illustrates the significant gap in housing the industry still needs to address.

New data from pending home sales (both existing and new) is good news for the housing industry, but likely a short-term affect. Our analysis indicates these buyers represent migration impact out of urban high rise living into suburban, detached living, plus sellers being more receptive and acting on offers quickly due to the crisis.  As the economic impacts of unemployment, consumer cash reverse catches up we see challenges in credit and loan qualifications in the future. The long-standing trend still supports the need for variety of housing options, typically outside urban mega centers, particularly for entry level homes.

Residential Remodeling: Functional and performance repairs and remodels are continuing, while less critical luxury updates are slowing, and new planning has ceased altogether. Homeowners in high COVID-19 case regions are limiting contractor access or entrance into homes and are prioritizing DIY projects as families are staying home.

Nonresidential New Construction: All segments of nonresidential building typically decline in recessionary conditions. Design build projects are moving out phases of construction to deal with local regulations and labor. Architectural firms report new project delays or projects are put on hold, yet 30% are continuing, many with purpose redesign inquiries. Design and development firms are planning for innovation in healthcare facility design post-pandemic.

The Post-Pandemic Construction Environment

The construction landscape post-pandemic is still a mystery, though the industry will face a new set of challenges and practices leading to an uneven recovery. Unemployment and consumer confidence are likely to have a significant impact on consumers’ intent and ability to purchase a new home, though historically, custom home building has recovered the quickest after a recessionary period. Pent-up demand leading into the crisis will weaken or shift into rental solutions and potentially last into the middle of the next cycle.

The latest new housing starts data for May released this June 17th by the Census Bureau shows a 4.3% increase over April to an annual rate of 974,000, the first increase since January. The housing start increase was driven by the West (21.5%) and the Northeast (+12.8%), the hardest hit regions in the first months of COVID-19, while new construction fell in the South (-16%) and the Midwest (-1.5%).

The increase was less than expected but forward-looking indicators are positive and suggest that new housing will see a strong Summer and be an important part of the economic recovery.  Additionally, there was a jump in builder permit applications in May of 14.4% over April, this following the news from the Mortgage Bankers Association yesterday that loan applications for home purchases increased by 4% last week and for the 9th week in a row.

We are seeing the short term impact of pent up demand from the Spring, along with record low mortgage rates – the average 30 year fixed mortgage rate just fell to 3.30%. However the sustainability of this rebound longer term will be determined by the overall health of the economy and disposable incomes, and continued high levels of unemployment will be a constraint on demand.

Multifamily fundamentals were healthy coming into the crisis, however single-family homes are beginning to dominate most of the demand. Low rise, less dense unit structures in suburban areas will be preferred after the virus, though multifamily construction is likely to see a healthy recovery.

Small and lower cost DIY projects are also likely to continue, with spending primarily driven by repair or critical improvements to homes. Therefore, kitchen and bath remodels as well as luxury interior offerings are likely to suffer.

Leading Segments for Growth

Low-rise multifamily construction – suburban and rural areas

  • Low interest rates and project funding will provide developers access to low cost debt
  • Increases in home loan standards will limit consumer mortgages and ability to purchase; rentals become more feasible
  • High tax city centers, implications from COVID-19 affects in high populous urban areas will drive consumers outside of urban, close proximity living and working environments
  • Consumers preference for more space, less density, access to open areas and yards favors low rise multifamily developments in suburban and rural areas

Warehouse and distribution facilities – digitalization and healthcare/public safety related

  • Continued expansion of warehousing and cold storage facilities due to growth in digitalization and e-commerce of critical food, medical and the Amazon effect
  • Lessons learned from delivery and online process for materials, food, supplies indicate more robust network needed – regionally
  • Federal, state and local stockpiling rebuild – expansion will require more, secured warehousing space of permanent nature (repurpose and build new)
  • Data centers for handling secure, expanded digitalization economy

Repurposed facilities for healthcare

  • Remodel conversion of existing healthcare facilities to better adapt to future crisis
  • Convert/repurpose local, less utilized facilities for overflow or staged healthcare crisis management
  • Temporary facility readiness planning for healthcare or public clients for fast response – migration away from open plan office or high occupant facilities
  • Building new, expanded or specialized healthcare facilities

Stay tuned in the coming days as our experts take a deep dive into COVID-19’s impact on building and construction infrastructure and what the post pandemic landscape looks like.

DuckerFrontier’s Building & Construction team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Is automation the key to supply chain stability in a post-covid-19 environment?

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IS AUTOMATION THE KEY TO SUPPLY CHAIN STABILITY IN A POST-COVID-19 ENVIRONMENT?

Manufacturers across industries have shut down amid the COVID-19 pandemic, with many refocusing their efforts on producing medical supplies and personal protection equipment such as ventilators and masks to help fill the need for these products across the healthcare sector.

Reduced product demand and workforce shortages are driving manufacturers to consider appropriate actions to protect working capital and maximize cash flow across many industrial channels.  They are minimizing raw material levels and reducing on-hand finished goods inventory.  Alternatively, there are several product categories that are experiencing tail winds for goods and materials that are critical to ongoing health care operations, DIY construction products, packaging materials, etc.  This massive disruption to the supply chain will continue to be a concern for manufacturers once demand picks back up and normal global business activities resume.  Manufacturers may struggle to source raw materials and may find greater competition across their supply chain as their suppliers have looked to new channels to support revenue streams.

As we adapt to the “new normal” during these uncertain times, businesses are scrambling to implement automation into the regular workflow and business applications. Industrial manufacturers across sectors have begun using automation to produce lower-cost products than those sourced from Asia. Increasing trade uncertainty between the United States and China has progressively increased the cost of overseas production, making domestic goods more appealing to manufacturers. The resulting software improvements from increased automation leads to more advanced innovation that could have lasting impacts across industries. However, automation could have immediate negative impacts on the workforce as it limits employment to qualified technicians over unskilled labor. DuckerFrontier’s Industrial experts, Managing Principal Joanne Ulnick and Commercial Director Dan Ward outline six actions for executives to consider as they navigate the current environment.

Actions to consider

  • Look past immediate efforts to mitigate risk and focus on re-engineering your supply chain to ensure resilience in uncertain times. We anticipate uncertainty will persist into 2021, so we suggest scenario planning to effectively manage supply chain risk to be able to identify and solve for demand shifts and disruptions quickly.
  • Work closely with government authorities to ensure a safe and efficient reintroduction of employees into the workplace and evaluate advancements in technology to support a safe work environment.
  • Consider opportunities to invest in production and material handling automation and retraining your workforce to support new production methods.
  • Evaluate the fixed costs within your organization and their intended purpose. Consider alternative situations to allow for the ability to “flex” expenses as revenues shift.
  • Consider alternative manufacturing methods for key components. Advancements in 3D printing technology and CNC production have grown exponentially in recent years and may provide the needed inventory coverage to maximize production.
  • Review your product portfolio and consider evaluating opportunities in adjacent markets with existing technologies or acquiring the technology required to penetrate a market. Portfolio diversification will help absorb shifts in demand and give you more time to react to a rising situation.

Stay tuned for Part 2, as our industrial experts do a deep dive on specific sub-sectors of industrial manufacturing and what executives can expect through the rest of the year.

Our teams of industrial experts are closely monitoring COVID-19’s impact on the global economy and business environment. View our up-to-date coverage on DuckerFrontier’s COVID-19 Resource Hub and subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business.

The potential impact of cash for clunkers 2.0 on the automotive industry

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THE POTENTIAL IMPACT OF CASH FOR CLUNKERS 2.0 ON THE AUTOMOTIVE INDUSTRY

The Cash for Clunkers (officially known as the Car Allowance Rebate System) initiative rolled out in 2009 under the Obama Administration in response to a deeply troubled 2008 automotive market that required a jolt to get back up and running. The government-issued $4,500.00 voucher was intended to ultimately boost consumer confidence while encouraging consumers to trade in eligible (older, less efficient) vehicles for newer, safer, and more efficient vehicles. The results of the original Cash for Clunkers (CFC) program have faced both praise and criticism; however, the program provided the intended immediate spike in sales with a $3 billion investment stimulating $14 billion in car sales.

The new Cash for Clunkers (CFC 2.0) program is expected to offer over $10 billion in stimulus funding, in turn driving over $50 billion in vehicle sales and over 4 million vehicle SAAR over a 6 month period. The new Cash for Clunkers program does have some requirements for consideration:

  • The vehicle should be produced in accordance with USMCA rules, or a minimum of 60% of the vehicle should be produced in North America
  • Additional incentives for Electric Vehicles (EVs) – commensurate with level vehicle electrification

Unintended Consequences of Cash for Clunkers 2.0

According to several OEMs, Battery Electric Vehicle (BEV) production significantly alters the medium- to long-term labor required at production plants and will negatively impact aftersales services compared to traditional Internal Combustion Vehicle (ICV) production. Although the original 2009 CFC plan proved effective, the price of gasoline exceeded $4 per gallon and demand was for highly efficient and smaller cars (benefiting small, subcompact, and compact vehicle segments). This led OEMs to implement major changes in product portfolios during the second half of the past decade and to request a revision of the EPA standards in 2016. As crude oil long term prices have collapsed (~$1 per gallon at the pump) – we can expect better alignment with the Detroit 3’s (General Motors, Ford and Fiat Chrysler) vehicle line-up and the CAFE/SAFE rules.

Key learning from Europe’s Scrappage Scheme

The 2009 and 2010 economic recession and subsequent vehicle scrappage scheme in Europe, intended to spur short term vehicle purchases, had long-term side effects on the market, natural demand cycles, and OEMs planning and forecasting. Long scrappage scheme programs generate opportunistic and anticipated sales leading to a slower recovery and sometimes a depressed post incentive market. Programs favoring selected vehicles usually create temporary distortions in the demand impacting margins (smaller vehicles) and manufacturing (peak productions for some assembly plants and excess inventory for others).

DuckerFrontier’s automotive and materials experts are closely monitoring the potential impacts of Cash for Clunkers 2.0 on the automotive industry. Below our experts outline some opportunities and challenges resulting from this updated program:

Opportunities:

  • Reduce dealer inventories – opens the door for business. The program creates positive dynamics for consumers to start visiting dealers again while generating consumer confidence
  • The program supports the restarting of production of vehicles (aligned with demand)
  • Per program rules, the belief is that less safe, less efficient, and more polluting vehicles will be replaced by safer, more efficient, and environmentally friendlier alternatives
    • The average vehicle produced and sold in 2019 is expected to have an average CO2 (tailpipe) emission rating of ~340 grams of CO2 / mile, compared with a car that is 15 years old emitting ~450 grams of CO2 / mile 
  • The market is experiencing a new need for mobility solutions (new driving habits, evolving needs for mobility) – work from home options can be more compelling and demand, interest, and popularity of electric vehicles can benefit consumers

Challenges:

  • Short term relief programs can lead to longer term implications of mismatched production and demand planning in the medium- and long-term.
  • Opportunistic and anticipated purchases may lead to a delayed recovery
  • This program may create distortions in the demand towards smaller and less profitable specific segments, leading to manufacturing stressors and unexpected investment patterns as it relates to the economy.

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry. How can we help you deliver the best performance for your business in 2020? Contact us to connect with an industry expert.

Strong order backlog and essential business label to help building & construction industry navigate covid-19

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STRONG ORDER BACKLOG AND ESSENTIAL BUSINESS LABEL TO HELP BUILDING & CONSTRUCTION INDUSTRY NAVIGATE COVID-19

The novel coronavirus (COVID-19) has not yet showed signs of slowing down in North America, causing major disruptions as cities and states halt business operations across industries, primarily in the global automotive space. The construction industry, however, still sees some pockets of opportunities as many construction sites continue to operate and we see a temporary spike in healthcare construction.

*Editor’s note – please check back regularly, as our Building & Construction team will be updating this article with the latest insights on the impact of COVID-19 to the residential, non-residential, and infrastructure sectors. For questions or to speak directly with a Building & Construction expert, please email info@duckerfrontier.com.

We are constantly monitoring rapidly changing developments surrounding COVID-19 to separate signal from noise and provide the most important insights for your business, now with a centralized hub for all of our analysis.

DuckerFrontier’s Building & Construction experts are keeping track of the latest COVID-19 developments and their impacts on the global automotive industry. Below our experts outline some opportunities and concerns in the construction industry as you navigate continued uncertainty surrounding COVID-19.

Opportunities

  • Good Inventory supply: Many North American construction firms use suppliers that are based in Asia and have struggled to maintain adequate supply as many factories in China were shut down for several weeks. However, winter and spring buying activities were high this year and replenished supply is likely already in route to North America as Chinese factories reopen.
  • Most construction deemed Essential by Government: Many state governments across the U.S. are sparing construction sites that are deemed “critical” or “essential” projects like infrastructure, hospitals, and some limited housing projects. With support from the government and major associations, many industry players are optimistic that activity will remain strong.
  • Shift to affordable housing favors rental communities, multifamily construction: With urban areas already hitting peak multifamily inventories, suburban and rural low/mid-rise will likely outperform. Further, virus implications favor shift away from high density living with access to more open environments.

Concerns

  • Demand slowdown: Although “critical” construction (infrastructure and many non-residential projects) is holding strong while other industries are seeing major disruptions, demand slowdown in the medium-term remains a large concern as the overall United States economy continues to lag.
  • Unemployment: In the short term, construction unemployment is spiking. This concern hits two-fold; employees are unable to work as residential and “non-essential” projects are halted indefinitely, and many workers at active sites have contracted COVID-19 and are unable to report to work. However, the biggest impact is the unemployment impact to financial health and affordability for home ownership down payments – likely reducing purchases and ownership for a while.

DuckerFrontier’s Building & Construction team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Landscape assessment | case study

Posted on by Amanda Smith
Dummy Category

LANDSCAPE ASSESSMENT | CASE STUDY

The Advisory team at DuckerFrontier is able to execute commercial diligence and market studies and pivot to your individual buy and sell side needs. Below you will find a recent case study outlining prioritization and scenario planning for markets, sub-segments and growth opportunities, as well as global regulatory concerns.

DuckerFrontier collaborated with company Phi to assess the current macro-economic and sociopolitical landscape in Russia to better position and inform the company for future strategic growth in the region

Challenge:

As a large, established multinational pharmaceutical corporation, Company Phi must better understand the underlying drivers that impact their business in Russia over the next 3-5 years to develop a data-driven strategic plan.

Approach:

DuckerFrontier utilized its deep pool of regional and industry knowledge to provide a five faceted outlook of the Russian pharmaceutical operating environment:

  • Macroeconomic: Including currency dynamics, oil price forecasts, overall economic profile, and economic impact on healthcare spending and budget
  • Sociopolitical: Current political dynamics, foreign sanctions tracking and forecasting, deep dive on Vladimir Putin, and ‘black swan’ strategic planning of a potential palace coup
  • Healthcare Policy: Expenditure profile, policy forecasts, pharmaceutical tender pricing and formulary analysis
  • Regional Assessment: Regional spending, pharmaceutical spending and pharmaceutical budgeting
  • Unique Trends: Analysis of the May Decrees (a major government expenditure plan with a focus on healthcare), and the adoption of tele-health and e-commerce and their impact on pharmaceuticals

Results:

By providing an in-depth market landscape assessment, Phi was well informed to develop a strategic market expansion plan, and due to political analysis and black-swan scenario planning Phi was prepared for the drastic political shifts made by Vladimir Putin in Early 2020 while capitalizing on the roll-out of the May Decrees.

DuckerFrontier’s advisory team is committed to helping sponsors, advisors and executives gain a clear understanding of market dynamics across our core industries, which include over 250 annual engagements in automotive & transportation, heavy equipment, industrials, building & construction products and healthcare . We combine our industry and market expertise with proven methodologies, access to industry participants and expedited processes, to provide clients with the highest quality insights and intelligence they need to make strategic investment decisions in shifting market landscapes. Contact us here to connect with a team member.