More Troubles Ahead in 2007 for Auto Industry and Home Builders, Say Turnaround Pros

CHICAGO - December 20, 2006: Skittish consumers are a significant factor in the top choices for the most troubled industries in 2007, according to respondents to the Turnaround Management Association's annual Trend Watch poll. Potential homebuyers and U.S. automobile owners seem to be in a "wait-and-see" mode, adding to the current distress in those industries.

The top four candidates predicted to encounter the "greatest financial and/or operational difficulties" in this year's poll:

  1. Automotive -- 74 percent of this year's responses
  2. Homebuilders -- 58 percent
  3. Construction/contractors -- 36 percent
  4. Manufacturing -- 26 percent

  Most distressed sectors

"There is excess manufacturing capacity in North America that the Big Three auto manufacturers are beginning to address and, as a result, many of the Tier One and Tier Two suppliers are having to deal with revenue declines," said Colin Cross, TMA 2006 president and managing director of Crystal Capital in Chicago.

"Homebuilders are sitting on undeveloped land they once considered assets," said Tom Henderson, Houston attorney and member of the TMA International Board of Directors. "Now the land's become just another form of liability as sales of new homes in most markets have slowed."

"The construction trades industry continues to shake out because of the sheer numbers of businesses owners who compete for new business by bidding for contracts with extremely thin profit margins," said Steve Mischo, past president of the TMA Long Island Chapter and senior workout officer /vice president at State Bank of Long Island.

Manufacturing has been near the top of the list of distressed industries since TMA began the survey in 2002, with members citing general economic conditions, global competition, legacy costs, and a high level of debt as major factors in 2007.

Improved industries

On the other hand, Trend Watch respondents named airlines as the industry most likely to improve during 2007. "More people are flying whether it be for business or pleasure. Airlines also have strategically reduced the number of flights, leading to higher loads, which combined with decreasing fuel costs as 2006 wore on, mean better financial performance," said Tom Pabst, Trend Watch Committee member and chief administrative officer at Great American Group in Chicago.

Other industries named by more than a quarter of the respondents included technology and financial services.

2007 turnaround trends

When asked to name the key factors affecting 2007 turnarounds, nearly half the respondents (48 percent) believe the influence of hedge and private equity funds will continue to increase. Nearly 30 percent foresee an increase in second lien and junior tranche lenders participating in corporate renewal, and nearly 40 percent predicted that traditional financial institutions will tighten credit during 2007.

TMA will address this trend and the growing number of distressed companies at its first Distressed Investing Conference being co-sponsored by The Deal at the Wynn Las Vegas on January 17-19, 2007.

Turnaround Management Association ( http://www.turnaround.org/ ) is the only international non-profit association dedicated to corporate renewal and turnaround management. With international headquarters in Chicago, TMA's 40 regional chapters comprise all disciplines in the community of 7,600 corporate renewal professionals.