The Company Behind the Brakes Just Crashed Out - What Now?

For the next few months, going to a mechanic might come with some new products, new prices, and new changes. If you or your parents invested in the debt of First Brands Group, your problems might be even bigger. For anyone dreaming to be a mechanic, keep your heads up. Why? Well, the group responsible for FRAM filters, TRICO windshield wipers, and Raybestos breaks, just declared bankruptcy with $10 billion dollars in pure, unadulterated debt. This is the company that supplies almost every type of  after-market car product you can imagine - this means new brakes, new filters, new wipers, and also new money. 

First Brands was a major collapse that shook Wall Street - but before that, it was a Michigan-based group with a strategy of acquiring car part companies and pushing aggressively for profits. Most of these companies were legacy companies, having been around for a very long time, and focused on creating parts for after a car’s been built - lots of things that get replaced by a mechanic or by you at home originally might have come from a First Brands label, especially if you’re in the US, Japan, or own a car model made by a US or Japanese car brand, which - considering that over 35% of the worldwide car market is held by top producers Toyota, Ford, Honda, companies that all produce cars that are often supplied with replacement parts from brands under First Brands group. 

The bankruptcy came from the financial model of the company - essentially, the company financed the acquisitions of its car-part companies with debt, by taking loans out from major banks and private creditors. Most notably, it took a loan from Bank of America. However, after market conditions changed unfavorably for them, the company took a hit, eventually filing for bankruptcy with $2.3 billion owed to various creditors. In the coming months. First Brands is just another in a series of important lessons about the danger of acquiring unsafe debt. Whether companies or people, it’s always an important reminder of not taking on too much debt, when the prospect of crashing out becomes ever-more present. 

Want to know the difference between good debt and bad debt? Check out: https://readmomentum.co/episode-7-how-do-i-know-the-difference-between-good-debt-and-bad-debt/