In the fall, when the ground dries out and the air turns colder, an ordinary, unremarkable storm can knock over a big tree that, unbeknownst to observers, was too weak to weather difficult times.
This year has been like a long autumn for many plastics processors, and we've seen a lot of big trees toppled. While now there are signs that recovery is on the way, you have to wonder how everyone has weathered the storm.
Take a look at a few of the well-known names that have been in bankruptcy court this year. Names like Trend Technologies Inc., Moll Industries Inc. and Courtesy Corp. And don't forget Venture Industries Corp., which is fighting through insolvency at its European operations. That short list includes four companies from the top 35 in our ranking of North American injection molders.
Although that lineup proves that size was no guarantee of success this year, many more small companies have suffered through the same troubles.
Growth and acquisitions were the key trends for plastics processors in the 1990s. So far the 2000s are all about consolidation. That's an unfortunate part of the business cycle. Few companies cut fat when times are good, because they think they need all the capacity they can get. Then, when there's a downturn, everything seems to turn nasty.
How bad is it? Maybe it's all a bit overblown. First, keep in mind that bankruptcy rarely means liquidation. Most of the companies you read about each week filing for Chapter 11 protection continue to operate. The trend today is to use bankruptcy to erase debt and escape creditors, allowing new buyers to take over company assets without all of those nasty liabilities.
Also, while processors and toolmakers have been on the front lines of the economic war, the long battle barely has affected suppliers. Resin companies have business cycles of their own - they expand capacity during good times and shut down older plants during downturns. But they're more diversified, and also quicker to lay off workers even during booms - two facts that leave them in better shape when customers go bust.
Compounders and distributors have been hit a bit harder, although to some degree they'll continue to make money as long as anyone continues to buy resin, regardless of whether prices are up or down.
Keep a closer eye on machinery makers in coming months. Some major players have cut capacity, but surprisingly, all of the major players from five years ago are still in business today. But there are signs of weakness.
Time will tell whether that will result in a new round of machinery mergers and some companies actually liquidating, or if an uptick in orders will come in time to save everyone.