Should metalworking companies brace for a slowdown in 2023? Are interest rates having an impact on equipment purchases? Is the move to robotics a significant trend that could help solve the labour skills shortage? We put these questions and more to industry leaders in our annual Outlook report. Before you finalize your strategy for next year, read what they have to say.
SHOP: What are you expecting in terms of business conditions for 2023?
ARCAND: Even though manufacturers are optimistic, things are slowing. Business conditions are not going to be as favourable next year as they are this year. Rising interest rates will slow growth across the world. The odds for a recession in Canada are probably increasing, because interest rates are being raised here and in the U.S., which is our most important market. The Fed has pretty much signalled it will tackle inflation at any cost. So, if you think of Canada’s most important export market going into recession next year, that’s not going to be great news for manufacturers. Offsetting that, if there is going to be a recession, it looks like it’s going to be mild and probably short lived. It’s not going to be of the magnitude we saw during the depths of the financial crisis in 2008-09 or during the start of Covid. So that probably explains why business confidence has not gone down as much as would have been expected.
HERGOTT: One thing that scares me is that soon as the media starts talking about recession, you can end up creating a recession because we talk about it so much. We are not seeing that level of decline in manufacturing. Half our members are still very busy. The machining side of things has been busy. We are still short goods, we are still short people, I am not too worried about (a slowdown) from XL Tool’s perspective and neither are a lot of CTMA members. Our forecast for the future is that things are going to stay steady.
THIARA: There is a great deal of uncertainty looming over us with all this economic doom and gloom but when we are out in the field there is a lot of activity. I visit a lot of moulding facilities and they’re all busy and some are even working seven days a week. There are some OEMs who have put orders on hold but only because there is such a backlog of orders at mould shops that can’t be completed due to unavailable parts or raw materials and logistics issues. So rather than adding more orders to the pipeline, the OEMs want to give the mould shops a chance to get caught up before they release any more orders to them. Specifically in the Windsor area, the electric vehicle plant that is going in there has created a lot of positive energy in the region that is going to create a lot of opportunities to that area and beyond.
HASROUNY: Our outlook and projections for 2023 are very similar to 2022. There are a lot of challenges, but the market is healthy and dynamic, people are purchasing. There are shops that are very busy and some shops still struggling to get their feet back on the ground after the pandemic, just like last year. There is definitely a continuous momentum, especially in the mould industry. If we continue along with this momentum, we should be good for at least the first quarter of 2023.
KLOTZ: What we’ve been hearing from members is that things are going to stay pretty much the same next year. The year 2023 will be quite similar to what 2022 has been with no improvement or decline. There are still going to be huge issues with logistics and getting materials and parts. Focusing on automotive, it’s going to get a little bit better but not much better. Steel prices have gone down but they’re still high. Availability is better too but still not where itused to be and so our members are still going to have to be passing on higher steel pricing to their customers. They will be generating more revenue but profitability wise it will probably be the same as before the pandemic.
SHOP: Are high interest rates having an impact on capital purchasing or growth plans?
HASROUNY: We haven’t had any issues approving customers the last few months. We had a customer in April who wanted to place an order and knowing already from discussions that interest rates were going to go up and delivery of the machine would not be till the fall, he signed the agreement with the leasing company and started his payments in May. His savings by starting to pay for the machine five or six months before it hits his floor were significant. Also, when he signed his agreement the exchange rate was less than it is today, so he got a good deal. We are encouraging customers as soon as they know that they want to place an order, even though the delivery will be later, to fix their rate now and start their payments. They won’t have the revenue associated with the equipment, but they will be saving money and paying off the equipment sooner.
KLOTZ: Machine manufacturers and suppliers I have talked to are all swamped and busy. They’ve got backlogs out to May and June of next year and can’t find the staff to build the equipment any faster so they’re quoting long lead times. We don’t see a slowing down in equipment purchasing. High interest may eventually affect it, but right now the outlook for capital equipment purchasing in early 2023 is still looking very strong. Members who are supplying housing-market related industries could see a slowdown, but they have been going like gangbusters since before Covid. But also, reshoring will lead to new plants and buildings in North America. Take a look too at what’s going on with the auto industry. We still have quite a way to go to get to the 17-18 million vehicles sold per year and the rental car industry has held off purchases since the pandemic. So the auto industry still has a lot of room to grow.
ARCAND: Talking to members I haven’t heard anyone discussing the issue of higher interest rates affecting their investment decisions. In theory higher interest rates should cause people to spend less but I think businesses are less sensitive to interest rate changes than households are. Canadian homeowners have high debt loads given what’s happened with the housing markets over the past few years so that’s really where interest rates will slow things down and you can see that already with the housing market going much lower and that has spinoff effects on home renovations, etc. That’s really where the impact is going to be. There may be a small impact on business investments, but businesses tend to have a longer term view of things.
CERON: There is going to be a little hesitancy in terms of pulling the trigger on a $100,000 purchase and then the training and the hiccups that come with the learning curve. But there is another side that is starting to become dominant in the robotics industry. We have 30 years of automation so the used market for automation and robots is growing substantially. Many companies now offer a used robot option for sale. These are robots which have come back into the market and are a fraction of the price. I have seen companies start to look into buying slightly used automation options for simple production runs, things that are quick repetition, recurring buys. This may be something for which you don’t need a $200,000 robot. It’s judging your needs against what you’re trying to produce and being realistic. If you’re hiring an employee, it’s a $75,000-$100,000 investment when you’re including salary, training and benefits etc., and there are availability issues. If you can spend $50,000 on a slightly used robot that was twice that when new, that might be worth considering.
SHOP: For those looking to purchase new equipment, our research shows a significant increase in plans to invest in automation and robotics in 2023. Are you seeing that as well and what role can automation play in helping solve the skilled labour shortage?
KLOTZ: I have one member who had zero robots five years ago and now they’ve got 45. And another who had none three years ago and now they have 15 or more. Automation is happening. One, because manufacturers can’t find people. If they need to run a second shift they can’t find people for it even if paying an overtime premium. Whereas before the pandemic when you offered overtime people would be on it and taking advantage of the extra pay, now they’re not interested. After the pandemic people are working the minimum 40 hours. I am not sure why this is happening.
HERGOTT: The driver is that you don’t have people to run the machines. You have to do more with less. Robotics is going to be huge. But it isn’t easy. It’s complex. The mould industry has always been ahead in terms of automating processes for machining. Can better equipment help us out? One hundred percent it can. And I think that’s where people are starting to reassess how they do things. Look at what automation can provide in the machining portion of the business. I think technology is getting a lot smarter a lot faster than we’ve ever seen before.
CERON: Automation is a huge leverage for a prosperous country like Canada. In many ways it solves many of the manufacturing outcome problems. It’s not a labour replacement. Manufacturing automation has been shown to increase hiring of humans. For every robot that does welding there is an operator who needs to know how to weld. For example, let’s say you have a manufacturing robot that can work 24 hours, that’s three shifts of humans who are needed to monitor that robot. That’s three shifts of people with welding experience that is required to do that. And then you have the people who build the robots, the people who install them, maintain them, etc. The network of automation is wide, and it is actually a huge opportunity. I have worked with large companies which have gone to automation and we would double our workforce in support of the automation. You are producing three times the widgets with automation, but you are also increasing the staff. But you will have the output to satisfy your customers and you won’t be falling behind, which is what the skills gap is causing.
HASROUNY: Automation is unavoidable. It’s going to start being the way North American machine shops transition. Medium-sized shops in particular are seriously starting to consider automating a lot of their processes. They have no choice and I think they’ve come to that realization as more and more customers are telling us their next purchase will be automation. For us to remain competitive as Canadian manufacturers we need to look at how can we produce products more efficiently.
THIARA: The young generation of today doesn’t want to be in dark, dirty, and dangerous environments. They’re all about technology. Automation will really work towards changing the perception of manufacturing and make it more appealing to the next generation.
SHOP: What’s your advice to our readers for 2023?
HERGOTTT: Don’t overreact, don’t panic. Continue running your business. Put your foot down and go to work. That’s how I got through the recession of 2008-2009. A good friend of mine a long time ago said recessions aren’t a bad thing. They sort out the weak from the strong and the strong get stronger and the weak just go away. Focus, find out what in your business you should and shouldn’t be doing. Get laser eyes.
THIARA: Be open to new initiatives and new opportunities that may arise out of the conditions of the marketplace, especially the electric vehicle plant going into Windsor. I think that’s going to present a whole new set of strategies for companies in terms of products they can work with and services they can offer. You need to be able to pivot and explore new opportunities. Canadian manufacturers did that during Covid so they proved it can be done. We had automotive suppliers all of a sudden producing face shields. Companies really need to explore new avenues. The market is changing and you have to think of new ways your company can add value. We are in a transitional stage and we need to be open to exploring opportunities and expanding capabilities.
KLOTZ: If you decide you don’t want to invest because of a concern of a recession happening, you need to look at your customer base and figure out which customers are profitable. Customers which are not profitable will require a decision on how to move forward with them. Your customer list and revenues can go down a bit but your profitability can increase by focusing on the right customers. Everyone gets so busy and it’s hard to say no to customers, but you have to look at what’s the right thing for your business and which customers are the right ones to grow with.
CERON: Research is always good, which is a bit tricky if you haven’t gone down the path before of trying to see what your local jurisdictions are producing and what’s the “win” for your area. We have a tendency to follow paths that have been consistent but in markets like this that are volatile there are things than are on the up—for example, the marine industry in Canada is exploding right now on all three coasts. If you are a company in the Prairies, there is nothing to say you can’t bid on those jobs. Look outside your local markets. Look for market assessments by jurisdiction. See where the big players are and where the money is being invested. You might have to chase a little bit, but the work is out there. It may not be the same work you have always done but we are seeing parts of boats being built in Saskatchewan and Alberta. That was not normal before but it’s happening now.
HASROUNY: My advice is don’t be scared. Your dealers are here to help you, to consult with you, to give you advice and if it doesn’t make sense for you, put (the equipment purchase) on hold until you think you are able to make the investment. But if you’re interested in equipment and you have a dealer you’re working with and he has inventory, go through the financing process and see what your monthly payments would be, what that does to your financial ratios and what your bank thinks. How fast will be the delivery? If you skip on the opportunity today what is the next delivery for you? Equipment is still very difficult to deliver. As soon as we have stock it’s gone. We don’t have stock for longer than two or three months now whereas before we would have stock for six to eight months. There are a lot of factors to consider but if it makes sense and you have the work for it, maybe it’s better to go ahead and make that investment right now. If you decide to skip it, your competitor may not. Don’t think that just because you’re hearing bad news it’s not the right time to invest. Sometimes it is the best time to invest. SMT
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