With the advent of electric vehicles (EVs), the automotive manufacturing sector is seeing a drastic paradigm shift. As the automotive industry advances at an accelerating rate, manufacturing equipment becomes obsolete more quickly. In some cases, it becomes necessary to close a facility altogether.

There are several situations where a company may need to close a facility. It can be due to financial losses or to allow for equipment upgrades. Whatever the reason for the closure, recovering as much value from your assets as possible is crucial.

Identifying Tangible Assets

During a facility closure, one of the most important tasks — and often the biggest undertaking — is liquidating your tangible assets. Tangible assets are material assets one can see and touch. They are physical in nature rather than abstract. Examples of tangible assets in a manufacturing facility include:

• Machinery and equipment: CNC machines, assembly line equipment, welding machines, cutting and shaping tools, industrial robots
• Tools and workstations: Hand tools (wrenches, screwdrivers, drills), workbenches, power tools, tool cabinets and storage units
• Vehicles: Forklifts, conveyor systems, material handling vehicles, industrial trucks
• Real estate: Manufacturing plants and buildings, warehouses, production floors, office facilities
• Raw materials and inventory: Raw materials used in production, finished goods inventory, inventory of incomplete products
• Computer systems and technology: Computer servers, manufacturing execution systems (MES), control systems and sensors, industrial computers and terminals
• Facility systems: HVAC (Heating, Ventilation, and Air Conditioning) equipment, lighting systems, plumbing and water supply systems, electrical systems and wiring
• Specialized equipment: Testing and quality control equipment, calibration tools, inspection devices, safety equipment (fire extinguishers, safety barriers)
• Furniture and fixtures: Office furniture, breakroom fixtures, employee workstations, reception area furniture
• Transportation assets: Company vehicles, delivery trucks, trailers for transporting goods
• Specialized containers and packaging equipment: Pallets, crates, packaging machinery
• Energy infrastructure: Power generators, electrical transformers, solar panels, other alternative energy systems

Identifying and cataloging these tangible assets allows stakeholders to make informed decisions about the closure process. For automotive manufacturers who need to liquidate assets quickly, it can often be advantageous to partner with a liquidating service. A wholesaler can often help with the valuation of tangible assets when manufacturers don’t have the accounting staff to complete the assessment in-house.

How Demand for EVs Impacts Automotive Manufacturers

While electric vehicles seem like a new development, the technology for fully electric cars has existed since the late 19th Century. It’s only in recent years, however, that EVs have become viable for mass manufacturing and widespread use. The switch from combustion engines to EVs has jumped by larger percentages each year. In 2020, only 4% of the car market was electric. By 2022, EVs made up 14% of the market. Experts predict that the industry will reduce oil consumption by 5 million gallons by 2030.

The primary way increased EV production affects manufacturing is in the types of car parts being produced. Internal combustion engines, for example, use cast metal bodies. The equipment needed to produce cast parts faces complete obsolescence in the manufacturing of batteries and electric drivetrains. Some EV manufacturers are finding ways to use cast metal and injection molding to create large car frame parts. However, the molds used for engine parts can’t be used for this process.

Electric vehicles also have fewer components in total than internal combustion vehicles, which changes the manufacturing process. The result is that automotive manufacturers either have to upgrade all of their equipment or permanently close some facilities. In the case of an upgrade, the facility still needs to undergo a prolonged closure to remove the outdated equipment and install new machinery.

In this situation, it becomes all the more important to have an accurate accounting of all the tangible assets onsite. Recovering as much value as possible for each piece of equipment can be the difference between a facility’s financial viability and the need for permanent closure.

The Facility Closure Process

Facility closure is a multifaceted process that takes meticulous planning, strategic decision-making, and effective asset management. Whether prompted by the need for upgrades, changes in market dynamics, or embracing new technologies, closing an automotive manufacturing facility requires a comprehensive assessment of the tangible assets involved.

1. Strategic Planning

The first phase of the facility closure process is planning. Senior management has to solidify the overarching goals and objectives driving the closure, whether it be for technological adaptation, market alignment, or operational optimization. This phase outlines the closure's scope and the timeline for its execution. There should also be quantifiable goals for the value recovered from assets.

2. Asset Inventory and Identification

The next step in the closure process is taking a complete inventory and identifying all tangible assets within the facility. This includes machinery, equipment, tools, raw materials, and any other physical items integral to the manufacturing process. If the closure is permanent, the value of the facility itself — the real estate — and any company vehicles is another crucial component. Accurate asset identification serves as the basis for subsequent valuation and recovery efforts.

3. Assessment of Asset Value

Each tangible asset identified should undergo a thorough assessment of its value. Factors such as depreciation, market demand, and overall condition contribute to the asset’s resale value. The value of these assets informs decisions regarding liquidation, sale, and potential repurposing. Consulting with a wholesaler or liquidation firm can help to expedite this process.

4. Strategic Asset Recovery

While handling asset liquidation in-house may be more cost-effective, the amount of time and labor involved often outweighs the cost of outsourcing the process. For this reason, collaborating with asset recovery specialists is often the easiest way to execute an asset recovery plan. At this phase, senior management can leverage the expertise of professionals who can facilitate the sale, auction, or relocation of assets to maximize returns. The goal is to recover the best value from surplus assets while minimizing disruption to the overall closure process.

5. Compliance and Environmental Considerations

The closure process needs to adhere to regulatory compliance and environmental considerations. Properly disposing of or recycling assets — especially those with environmental implications — is integral to responsible facility closure. This ensures that the closure aligns with industry standards and environmental sustainability practices.

6. Employee Transition and Communication

Addressing the impact of a facility closure on the workforce is another important step in the process. The Department of Labor has strict standards for notifying employees of a closure. Clear communication and support for affected employees along with transparent transition plans, contribute to a smooth closure process. This includes potential retraining or reassignment strategies for employees affected by the facility closure.

7. Documentation and Reporting

Throughout the closure process, meticulous documentation is essential. This includes records of asset assessments, valuation reports, compliance documentation, and any transactions related to asset recovery. Comprehensive reporting ensures transparency and accountability, mitigating potential challenges in the future, like tax filing.

Best Practices for Automotive Manufacturers: Getting the Most Out of Tangible Assets

In automotive manufacturing, managing tangible assets during facility closure or upgrades is key to maximizing returns from resale. Automotive manufacturers can successfully navigate this intricate process by following these general guidelines:

Early Assessment and Planning

Start planning for the facility closure process as soon as possible. Proactive, comprehensive assessment and planning will ensure you have enough time to assess each asset properly. Anticipate future changes in the automotive landscape and proactively evaluate the condition and value of tangible assets. Thorough planning helps to facilitate informed decision-making and minimizes disruptions.

Comprehensive Asset Inventory

Take a detailed inventory of all tangible assets within the facility. Categorize assets based on their relevance, condition, and potential for repurposing or resale. Coordinating with different departments can help prevent any assets from going unaccounted for. A comprehensive asset inventory makes determining the total value you can expect to recover easier. It can also save time when you go to the resale phase of the closure process.

Throughout the inventory process, note each item’s initial value, condition, and age. These factors will impact the recovery value of each piece. Remember that with a facility closure, you’ll likely resell your tangible assets at wholesale price.

Working with Asset Recovery Specialists

Consult with reputable asset recovery specialists early in the closure process. Their expertise in assessing, valuing, and recovering assets will be beneficial in creating a streamlined recovery plan. Collaborative efforts also make manufacturers more likely to get the biggest return on surplus assets.

NRI Industrial: A Global Asset Recovery Partner

A facility closure is an extensive process, and getting the highest value for your tangible assets is essential to mitigating loss. In automotive manufacturing, processes become obsolete at an ever-increasing rate, and facilities often need to upgrade to keep up with demand. Partnering with an asset recovery service can make the closure process faster and easier. Contact NRI Industrial to learn more about our asset recovery services.