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Hoosier manufacturing takes a hit; How will it rebound?

Automakers, including Toyota, plan to return to work in Indiana the week of May 11. (photo courtesy of Toyota)

WEST LAFAYETTE, Ind. (Inside INdiana Business) — Indiana is a national manufacturing powerhouse, both in employment and output. But the COVID-19 pandemic is putting the brakes on the state’s industrial prowess.

The Federal Reserve said Wednesday U.S. manufacturing output dropped 6.3% last month. The last time it dropped that much was in post-World War II 1946.

The Fed said most major industries posted decreases, but the largest decline was registered by motor vehicles and parts.

That loss is especially tough on Indiana as it ranks number three in the nation for automobile assembly and auto parts manufacturing, according to the Indiana Economic Development Corp.

Automakers who shut down their auto assembly plants last month, including those in Indiana, say the return of consumer demand is part of the equation in determining when they will re-open.

“They shut down because the consumer demand wasn’t there. Where did the demand go? Is it gone forever or just shifted?” wondered Ananth Iyer, a professor of operations management with the Purdue University Krannert School of Management. “If their financial situation improves, so they continue to decide to buy a car, then all we’ve done is time-shifted when that demand happens. But, if in fact there are lagged effects of this downturn, and some people who had planned to buy feel nervous, then that’s when there’ll be a bit of an issue until things come back.”

The pandemic led many factories to suspend operations in late March after President Trump declared a national emergency. The Federal Reserve says automobile output fell 28% as American automakers closed their plants.

Those closings then cascaded through the supply chain, further impacting manufacturers who support the industry.

“It trickles to the end. And we have a large number of those components. Thousands upon thousands,” explained Iyer. “My notion is, if underlying demand comes back, all of this will have to catch up and that’s what will put the (economic recovery) on track.”

On Thursday, President Trump released the administration’s plan to reopen the economy, allowing employees to start returning to work, while still enforcing social distancing measures.

“Companies like ours are trying to figure out ways to protect the health of our employees and our communities and still find ways to make sure that we’re a sustainable enterprise because the economy in our communities will need us as the health crisis begins to wane,” Cummins Chief Executive Officer Tom Linebarger said during last weekend’s edition of Inside INdiana Business with Gerry Dick.

Linebarger was one of several executives from Indiana-based corporations who met with the president to provide insight on how to go about rejuvenating the economy.

Iyer says the steps Indiana manufacturers took to keep employees safe from COVID-19, by shutting down factories, will see an economic return in the form of worker loyalty when industries return to production.

“The key to success is employees pitching in. If they’re treated well and families feel appreciate it, they’ll likely go that extra mile,” said Iyer. “The action to protect employees and do the right thing will pay large dividends.”