The Most Important Bankrupcty In Recent Automotive History

Issue #184

Hello! Today, we discuss one of the most important bankruptcies in the automotive sector, probably since 2008.

The problem is that the consequences are just beginning to show. We explain.

Or, you can continue to read by scrolling down.

Market News

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Car Culture

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• Cars from the 2000s are becoming collector cars. Here’s why.

• 90% of Toyota GR86 buyers go for a manual transmission. It leads this list of 10 manual cars keeping tradition alive.

Video Of The Week

TFL reviews the cheapest Wrangler in the market. What do they think about it? Here’s the answer.

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In The Know

The most important automotive bankruptcy you’ve never heard of

​StopTech was a division of Centric Parts that specialized in performance brake upgrades and focused on smaller racing projects. Though it wasn’t as famous as others, it was well-liked, mainly because of its high-quality products and reasonable prices. Now, it’s gone, and it’s not the only one.

More and more companies will go under, and it’s all because of First Brands, as this article explains.  

Chances are you’ve never heard of them, but First Brands is one of the most important companies in the automotive industry, and it has just imploded. The situation is so dire that experts consider it the worst automotive crisis in recent US history.

So, what happened? You can read the official case in the US Attorney’s Office here.

Here’s the summary: founded in 2013, First Brands grew into one of the most important parts suppliers to major automakers, small mechanics, and DIYers alike.  The company eventually grew to acquire 24 companies, including big brands such as Raybestos and Autolite.

While there’s nothing wrong with a company growing fast, the particular aspect of First Brands is that it grew by taking on a lot of debt. Not only that, but how it acquired debt was also concerning.

It turns out that the company wasn’t exactly a parts provider. Instead, it was more of a finance company that also borrowed against its debt, effectively keeping debt off the record. It only sold car parts to pretend.

First Brands managed to do this by convincing the world that its products were vital. After all, as automotive media once said, “if your car was more than ten years old, chances were high it had First Brands products.”

That’s why it kept buying companies, and, as the District Attorney’s Office states, by inflating invoices and pretending their debt was significantly smaller than it actually was, the company was able to secure even more cash injections to continue its façade.

In short, it was an automotive parts Ponzi Scheme. And, as we all know, Ponzi Schemes always collapse.

Here’s how important First Brands became to the automotive industry that, even when the financials crashed, and the company began bankruptcy proceedings, it somehow managed to land $1.1 billion in loans to stay alive, as this article details.

However, in the end, everyone predicting the company’s downfall was right. By January’s end, First Brands was collapsing, and lenders even rejected another $700 million loan. Instead, they pushed for asset liquidation.

That’s where the automotive sector truly suffers. As the conglomerate separates, some are exchanged, but the reality is that, with so much debt, most will cease to exist. The consequences are direct and immediate.

At the same time, there’s no telling how much this downfall will impact the automotive sector in the long run. This is mainly because the sector is already struggling with supply chain issues, and now, one of the main providers is killing off brands; car parts may continue to increase in price and scarcity.  

Is it time to stockpile?