The ever-resilient manufacturing sector has been bruised (and some might say battered) in recent years, through the pandemic, raw material shortages, increased labor costs, rising interest rates, and Russia’s war against Ukraine. Below are the three likely disruptors manufacturers face at the outset of 2023, and tips for surviving (or even thriving) in the face of what manufacturing sector attorneys see coming down the road:

1. More manufacturers will suffer financial distress, but there will be possible opportunities for growth through acquisition. Lenders, many of whom previously provided extensions of credit and forbearance on defaults, are increasingly asserting their rights and remedies in the case of new or ongoing defaults. Variable interest rate facilities have become more burdensome. The cash flow and credit issues that borrower companies face may result in opportunities for other companies to purchase them (or their lenders’ debt) at depressed valuations. While these deals may appear hard to come by, shrewd investors will be well served by considering both out-of-court and bankruptcy acquisitions of the distressed companies under pressure due to the current environment. For more information, click here.

2. More manufacturers will face continued increased costs, but there are possible opportunities for cost-recovery. While manufacturing costs continue to rise, suppliers who seek cost recovery from their customers and who support their request with transparent and thorough data are more likely to achieve support from their customers. This can be in the form of increased prices, a lump sum payment, or more profitable go-forward business. These negotiations can strengthen long-term relationships within the supply chain.

3. Some manufacturers may be disrupted by the transition from internal combustion engine (ICE) vehicles to electrical vehicles, but there will be opportunities for growth in the new frontier. Perhaps not since the introduction of the Ford Model T has there been a more exciting and transformative time in the automotive industry. Countless opportunities exist for startup and early-stage companies seeking to supply new components required for electric vehicles, with many still in the development phase. Federal grants to support this nascent industry are increasingly in play, such as those awarded by the Department of Energy in 2023 to support the manufacture of batteries for electric vehicles in the U.S. For more information, click here.