Skip to main content
Sister Publication Links
  • Sustainable Plastics
  • Plastics News China
  • Rubber & Plastics News
logo-pn-color
Subscribe
  • Login
  • Register
  • Subscribe
  • News
    • Processor News
    • Suppliers
    • More News
    • End Markets
    • FYI Charts
    • LSR World
    • Multimedia
    • NPE2021
    • K Show
    • Special Reports
    • Top materials of injection molders
      Recycled PET use by product category
      US PET, flexible packaging desintations
      Global fluropolymers additives market: CAGR
    • NPE exhibitors question handling of deposits for canceled trade show
      Exhibitors back NPE cancellation: ‘We couldn't take that risk'
      NPE2021 canceled as in-person event
      NPE reviews its options as pandemic prompts exhibitor to exit
    • Injection Molding
    • Blow Molding
    • Film & Sheet
    • Pipe/Profile/Tubing
    • Rotomolding
    • Thermoforming
    • Recycling
    • Machinery
    • Materials
    • Molds/Tooling
    • Product news
    • Design
    • What Keeps You Up At Night
    • Mergers & Acquisitions
    • Sustainability
    • Public Policy
    • Material Insights Videos
    • Numbers that Matter
    • Polymer Points Live
    • Automotive
    • Packaging
    • Medical
    • Consumer Products
    • Construction
    • Videos
    • Galleries
    • Podcasts
    • CEO Issue
    • Best Places to Work
    • Processor of the Year
    • Rising Stars
    • Women Breaking the Mold
  • Opinion
    • The Plastics Blog
    • Kickstart
    • Heavy Metal
    • One Good Resin
    • BRICS and Plastics
    • All Things Data
    • Viewpoint
    • Perspective
    • Mailbag
    • Getting back on the road
      How long will it take for EVs to replace internal combustion engines?
      Watching, and hoping, for progress in 2021
      COVID-19 stories dominate 2020 headlines
    • Kickstart: Best foot forward
      Kickstart: Heading back to the office ... sometime
      Kickstart: 'Have an adventure in life'
      Kickstart: More toys for your collection
    • Heavy Metal: Coronavirus edition, plus the work of working from home
      Don't put off succession planning
      What's a good gift for your cobot? Batteries?
      Here's some big ideas to mull over the holidays
    • Plaskolite wins 3M supplier award
      Green feet: Braskem partners with Dansko on bio-based clogs
      Curbell donates plastic sheet for prosthetics project in Ecuador
      Covestro volunteers build ramp for Ohio veteran
    • There was no choice but canceling NPE still a big deal
      The business case for producer responsibility
      Think divided government stalls plastics legislation? Think again
      ACC, NAM eye economic priorities in Biden presidency
    • Thermoformers: Would you believe a 12 percent gain?
      Just how big is thermoforming in North America?
      Changing names for compounders embracing corporate branding
      Diversity the key to outperforming the market
    • Thermoformers: Would you believe a 12 percent gain?
      The benefits of getting social
      Rising Stars shine bright future on industry
      Getting back on the road
    • Perspective: Plastics manufacturers — a surprising contribution to sustainability
      Plastics industry business owners: Listen to your future workforce
      Perspective: ‘Fake news' of a different sort?
      Perspective: Making products in the USA is good for the planet
    • Mailbag: Additional fees for electric vehicles ‘unfortunate'
      Mailbag: Where's the plastics industry's response to critics?
      Mailbag: Manufacturers struggling to follow COVID-19 safety rules
      Modernizing recycling infrastructure will benefit businesses as well as the environment
  • Shop Floor
    • Blending
    • Compounding
    • Drying
    • Injection Molding
    • Purging
    • Robotics
    • Size Reduction
    • Structural Foam
    • Tooling
    • Training
    • Maintenance can ensure efficient blender operation
      Dosing: Perfect for adding color
      Blending vs dosing: What you need to know
      Going low or high: Comparing volume
    • Colors and custom compounds
      In the laboratory: Compounding solutions
      Recycling content: Resins going ‘green’
      Compounding: Glass and other fillers
    • Dryer maintenance: Don’t err with air
      Dryers: Options for a shop’s process
      Dryer installation: Going central?
      Resins: Hygroscopic or non-hygroscopic
    • Electric injection molding presses: Efficiency is key
      Hydraulic injection molding machines
      Proper maintenance can prevent downtime
      Hybrid injection molding machines
    • Purging Hot runners: Open or closed methods
      Purging extrusion machinery
      Purging extrusion blow molding machines
      Purging: Chemical, abrasive and non-abrasive
    • Controls, special applications boost production, profitability
      Robot maintenance key for smooth operation
      High-speed robots: A rapid way to increase efficiency
      Robots: Every shape and size
    • Maintenance: Key for efficiency
      Shredders: Plastic in pieces
      Safety first for size reduction
      Granulators: The right fit
    • Video: Structural foam molding
      Structural foam molding: Flexibility for processors
    • Mold inventory: How many molds does a shop have?
      Molds: Innovation
      Mold changeover: Saving time and money
      How molds work
    • Labor: Apprenticeships may provide answer
      Internships: Solving the skills gap in-house
      College training, programs
      Lean Six Sigma: Transforming business operation
  • Events
    • Plastics News Events
    • Industry Events
    • Livestreams/Webinars
    • Ask the Expert
    • Polymer Points Live
    • Reifenhäuser Technologies Livestreams
    • 2020 Caps & Closures Library
    • Plastics in Healthcare Library
    • Women Breaking the Mold Networking Forum Library
    • Polymer Points Live - February 2021
      Polymer Points Live - January 2021
      Polymer Points Live - December 2020
      Polymer Points Live - October 2020
    • Plastics in Healthcare 2020
    • Plastics News Executive Forum
    • Plastics in Automotive
    • Plastics News Caps & Closures
    • Plastics in Healthcare
    • Women Breaking the Mold Networking Forum
  • Resin Prices
    • All Resins
    • Commodity TPs
    • High Temp TPs
    • ETPs
    • Thermosets
    • Recycled Plastics
    • Historic Commodity Thermoplastics
    • Historic High Temp Thermoplastics
    • Historic Engineering Thermoplastics
    • Historic Thermosets
    • Historic Recycled Plastics
  • Rankings
    • Injection Molders
    • Blow Molders
    • Film Sheet
    • Thermoformers
    • Pipe Profile Tubing
    • Rotomolders
    • Mold/Toolmakers
    • LSR Processors
    • Recyclers
    • Compounders - List
    • Association - List
    • Plastic Lumber - List
    • All
  • Data Store
  • Directory
  • More+
    • Classifieds
    • Digital Edition
    • Newsletters
    • Sponsored Content
    • KraussMaffei Sponsored Content
    • ENGEL Sponsored Content
    • White Papers
    • Processor of the Year submissions
    • Sponsored By Ensign Equipment
      Filling Systems Customized for Any Process or Budget Need
      KraussMaffei
      Sponsored By KraussMaffei
      KraussMaffei Retools in US with investment from Parent Ownership
      Sponsored By Mitsubishi
      Innovative new technology from Mitsubishi Engineering-Plastics Corporation helps reduce emission footprints
      Canon Virginia, Inc.
      Sponsored Content By Canon Virginia, Inc.
      Canon Virginia Inc. brings collaboration to the table
    • KraussMaffei
      Sponsored By KraussMaffei
      KraussMaffei Retools in US with investment from Parent Ownership
    • Sponsored By ENGEL Machinery
      Tailored maintenance for injection molding machines and robots
      Sponsored By ENGEL Machinery
      Improve maintenance efficiency with e-connect.monitor
      Sponsored By ENGEL Machinery
      Maximum precision for lowest shot weights
      Sponsored By ENGEL Machinery
      Even more cost effectiveness for small precision parts
    • Shell
      Sponsored By Shell
      Food and Beverage Trends Impacting the Polymer Industry
      Sponsored By Conexiom
      Use Sales Order Automation to free up time for CSRs to focus on customers, not manual entry
    • Place an Ad
    • Sign up for Early Classified
MENU
Breadcrumb
  1. Home
  2. News
September 22, 2020 09:22 AM

Processors navigating financial troubles amid changing markets

Sarah Kominek
Plastics News Staff
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    AJ Mast for General Motors and Ventec
    General Motors Co. worked with Ventec to make ventilators for the health care industry. GM workers have now transferred back to auto production as the general economy works to rebuild from widespread pandemic shutdowns.

    As plastics processors navigate changing markets due to the COVID-19 pandemic, "poorly run" businesses could face financial troubles toward the end of the fiscal year, despite their end markets, analysts say.

    A "culmination" of things are offsetting a "tidal wave" of those processors selling or filing for bankruptcy protection, Ted Morgan, partner and management consultant at Plante Moran PLLC, told Plastics News.

    "The patience level of banks has been a bit higher, especially for smaller manufacturers," Morgan said. "There's too much at risk for them to be overly aggressive and start calling on what they've lent to the market … and that has effectively delayed some of this."

    While the automotive market has recovered "pretty nicely," he said, "it's not totally recovered." Bigger plastic processors are generally better positioned with enough capital to make it through a financial downturn, Morgan said.

    "Plastics processors who were operationally sound and on the right vehicle platforms prior to COVID are doing OK, have cash flow, can pay their vendors, are getting paid by customers," Morgan said. "But a growing number of those not on as solid ground going into to the pandemic are really starting to feel the pain."

    The CARES act, which put some cash in the hands of workers who were furloughed earlier this year, along with low gas prices and interest rates, have "helped consumer spending levels up, which drives up plastic part demand in many end markets," he said. "All of these factors have really helped stave off any major implosion of most plastics market segments."

    Laurie Harbour, CEO and president of consulting firm Harbour Results Inc., told Plastics News she didn't think low interest rates have had a major impact on companies' financial health during the pandemic.

    "I think the biggest problem is that companies can't get working capital to ramp back up again, and I don't think we're going to have a sustained ramp up," Harbour said.

    Based on Plante Moran's annual North American Plastics Industry Study, Morgan said that as plastics processors grew from 2015-17, they likely bought equipment and hired staff to keep up with demand.

    When sales plateaued in 2018 and 2019, he said, typical processors were doing "just OK."

    "When sales growth slows or, worse, declines, they typically struggle to flex their labor quick enough to respond falling end-customer demand, leaving them saddled with high debt and too many employees," Morgan said.

    "It wasn't a cost-efficient market going into COVID," he said. "Back-to-back, year-over-year declines in profits, utilization was declining and labor productivity was just OK.

    "Then you throw in falling demand in appliance, automotive and consumer goods," Morgan added. "The onset of COVID really hurt. It drew into the working capital of the plastics processors. They maxed out their lines of credit with the banks, and they got the PPP [Paycheck Protection Program] loans to stay afloat."

    After a 10-year expansion for the industry since the Great Recession, 2019 was "the first time" there was negative overall growth in plastics, said Bill Wood, owner of Mountaintop Research and Plastics News economic editor.

    "There had been some ups and downs," Wood said. "But every year registered positive growth. 2019 did not have positive growth."

    This was partially due to lower motor vehicle, computer and household consumer product sales, he said.

    "You could see the same thing in the machinery data. ... Nothing was generating extra demand," Wood said. "It was averaging, as plastics does over the long term, about the same pace as the overall economy. Last year, the overall economy expanded, but plastics did not.

    "I had anticipated we might get a little rebound this year," he added. "Obviously that's not going to happen now."

    Ford Motor Co.
    ‘Very early stages' of financial strain

    Harbour said banks, customers and the rest of the outside world are seeing the "very early stages" of financial strain due to the pandemic.

    "I believe that the companies are actually in financial strain and have been for a few months," she said. "There's a couple of things going on. Some of it's just denial. … And some of it is just not really knowing and understanding how much trouble we're really in."

    While Tier 1 suppliers are also feeling that strain, Harbour said, her biggest concern is middle-market companies — "the people that are supporting the rest of the industry."

    Harbour Results has advised its clients to work on restructuring before their banks get involved, she said.

    "Most of the people I've talked to in the restructuring environment are saying they're not seeing formal restructurings from the bank yet, that the bank is not really seeing it," Harbour said. "But they also say that the banks are a little bit in denial."

    Strategic buyers looking to buy struggling competitors are in short supply because they lack capital, she said. Most inquiries she sees are from private equity.

    "They, too, are feeling the strain," Harbour said. "But there are private equity people out there interested in doing it [plastics M&A deals], but they want to do it at a very low price."

    Wood thinks some "better-positioned" companies are beginning to make moves on their struggling competition, but that it might be "under the surface."

    "There's never a better time to get aggressive than when interest rates are at all-time lows," Wood said. "If you have the ability to borrow, now is the time to get after it. I think that's starting to happen in certain segments of the plastics industry."

    However, he added, "there's going to be a bunch of companies that nobody wants."

    "At any given time — it could be the best of times or average — there's always companies on the edge," Wood said. "There's always someone being out-competed or that made a bad choice. Now you add a natural disaster, and of course those guys are going to be the first ones out."

    While the strength of processors' end markets are important, Harbour said, the way businesses are run will determine whether they survive a downturn like the Great Recession of 2008.

    "I don't think they're the same recession, but it was a major impact that we weren't ready for," she said. "Recreational vehicle markets are actually doing really well because of COVID. People are buying boats and RVs, but they tend to be lower volume. It's not like selling 17 million cars.

    "We rode this 11-year expansion wave in manufacturing and the return of the economy from the Great Recession," Harbour said. "We got a little fat, dumb and happy.

    "If we didn't have good leaders driving consistent discipline, we got into debt, we got bad balance sheets, and our profit and our efficiency went the wrong direction and then COVID hit," she said.

    While the automotive industry is currently busy replenishing inventories, Harbour expects that demand to "soften" in the first quarter of 2021, "or maybe even the fourth quarter of this year."

    "We have a lot of economic issues at play that are going to drive us into a relatively sustained global recession, in our opinion," she added. "The longer and deeper this recession gets, the worse we're going to see."

    Letter
    to the
    Editor

    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Plastics News would love to hear from you. Email your letter to Editor at [email protected]

    Get our newsletters

    Staying current is easy with Plastics News delivered straight to your inbox, free of charge.

    Subscribe today

    Subscribe to Plastics News

    Subscribe now
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter
    • Instagram

    Plastics News covers the business of the global plastics industry. We report news, gather data and deliver timely information that provides our readers with a competitive advantage.

    logo-pn-color
    Contact Us

    1155 Gratiot Avenue
    Detroit MI 48207-2997

    Customer Service:
    877-320-1723

    Resources
    • About
    • Staff
    • Editorial Calendar
    • Media Kit
    • Data Store
    • Digital Edition
    • Custom Content
    • People
    • Contact
    • Careers
    • Sitemap
    Related Crain Publications
    • Sustainable Plastics
    • Rubber & Plastics News
    • Urethanes Technology
    • Plastics News China
    • European Rubber Journal
    • Tire Business
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • Processor News
        • Injection Molding
        • Blow Molding
        • Film & Sheet
        • Pipe/Profile/Tubing
        • Rotomolding
        • Thermoforming
        • Recycling
      • Suppliers
        • Machinery
        • Materials
        • Molds/Tooling
        • Product news
        • Design
      • More News
        • What Keeps You Up At Night
        • Mergers & Acquisitions
        • Sustainability
        • Public Policy
        • Material Insights Videos
        • Numbers that Matter
        • Polymer Points Live
      • End Markets
        • Automotive
        • Packaging
        • Medical
        • Consumer Products
        • Construction
      • FYI Charts
        • Current FYI
      • LSR World
      • Multimedia
        • Videos
        • Galleries
        • Podcasts
      • NPE2021
      • K Show
      • Special Reports
        • CEO Issue
        • Best Places to Work
        • Processor of the Year
        • Rising Stars
        • Women Breaking the Mold
    • Opinion
      • The Plastics Blog
      • Kickstart
      • Heavy Metal
      • One Good Resin
      • BRICS and Plastics
      • All Things Data
      • Viewpoint
      • Perspective
      • Mailbag
    • Shop Floor
      • Blending
      • Compounding
      • Drying
      • Injection Molding
      • Purging
      • Robotics
      • Size Reduction
      • Structural Foam
      • Tooling
      • Training
    • Events
      • Plastics News Events
        • Plastics News Executive Forum
        • Plastics in Automotive
        • Plastics News Caps & Closures
        • Plastics in Healthcare
        • Women Breaking the Mold Networking Forum
      • Industry Events
      • Livestreams/Webinars
      • Ask the Expert
      • Polymer Points Live
      • Reifenhäuser Technologies Livestreams
      • 2020 Caps & Closures Library
      • Plastics in Healthcare Library
      • Women Breaking the Mold Networking Forum Library
    • Resin Prices
      • All Resins
      • Commodity TPs
        • Historic Commodity Thermoplastics
      • High Temp TPs
        • Historic High Temp Thermoplastics
      • ETPs
        • Historic Engineering Thermoplastics
      • Thermosets
        • Historic Thermosets
      • Recycled Plastics
        • Historic Recycled Plastics
    • Rankings
      • Injection Molders
      • Blow Molders
      • Film Sheet
      • Thermoformers
      • Pipe Profile Tubing
      • Rotomolders
      • Mold/Toolmakers
      • LSR Processors
      • Recyclers
      • Compounders - List
      • Association - List
      • Plastic Lumber - List
      • All
    • Data Store
    • Directory
    • More+
      • Classifieds
        • Place an Ad
        • Sign up for Early Classified
      • Digital Edition
      • Newsletters
      • Sponsored Content
      • KraussMaffei Sponsored Content
      • ENGEL Sponsored Content
      • White Papers
      • Processor of the Year submissions