First Brands Bankruptcy Kills Three Major Auto Parts Companies

Autolite spark plugs is arguably the most visible, as it was a major NASCAR sponsor and still makes all kinds of spark plugs, including hard-to-find OEM replacements that automakers abandoned long ago. Cardone will likely have the biggest overall impact, as it specializes in remanufacturerd components like water pumps and brake calipers, selling like-new parts at significantly lower prices. Brake Parts Inc. covers all kinds of brake components from brands like Vortex and Raybestos.

The company First Brands started making headlines last year after disclosing liabilities exceeding $10 billion. In its Chapter 11 bankruptcy petition, the company estimated liabilities in the range of $10 billion to $50 billion. First Brands' assets were estimated at $1 billion to $10 billion, but it got worse when its founder and CEO, Patrick James, stepped down as a US Justice Department probe started. First Brands then sued James, accusing him of misappropriating millions, perhaps billions, of dollars.

First Brands has been trying to sell assets, and earlier this month, according to the Financial Times, started to market itself for sale, either in whole or in parts, as part of its efforts to exit the Chapter 11 bankruptcy. The problem is that First Brands is part of the supply chain industry for automakers, and there will be ramifications if it goes completely under.

Enter Ford and GM
Reported on January 26, Ford and GM are in negotiations over ​a potential financing package to keep the company operating during ‌its Chapter 11 proceedings. The aim is to keep First Brands alive by paying in advance for parts they expect to receive to get the company over the "finishing line." If First Brands makes it across the line, it now has a new roster of leaders to help reboot the company.

“Over the past several months, we explored all available options to secure funding and advance the sale process for the Brake Parts Inc., Cardone, and Autolite businesses. Unfortunately, those efforts ultimately did not result in a viable solution which would enable us to maintain these operations. While this is not the outcome we worked toward, I want to sincerely thank our employees for their dedication, professionalism, and resilience throughout this process.”
– Charles Moore, interim chief executive officer of First Brands Group.
Even with potential automaker help, it's clear not all the companies in the First Brands portfolio will survive. "We continue to monitor the situation with First Brands closely and are working on contingency plans to avoid any potential interruption to our operations," a GM spokesperson told Reuters.

There are many parts on cars that automakers don't make themselves, particularly consumables like tires, windscreen wipers, brake parts, and spark plugs. The only parts company First Brands doesn't appear to have on its roster in those terms is a tire company. Michelin is technically listed, but only the name is licensed for windshield wipers. The company proper isn't part of this mess.

Rising And Falling
It has been quite the rise and fall for First Brands. The Cleveland auto parts supplier was founded in 2013 as Crowne Group, and quickly set about acquiring brands through debt-financed deals. First Brands built itself by borrowing money against accounts receivables from retail customers including Walmart, AutoZone, and Napa – a practice known as "factoring." Actual lenders that are now struggling to get money back include Wall Street firms, with King Street Capital ‌Management and Mudrick Capital Management being among them.

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A report from The Wall Street Journal says that those firms are "resisting a request by the ‌auto parts supplier to ​secure a $700 million loan." It appears they would prefer liquidation and get at least some of their money back, putting them at odds with the automakers relying on parts supply.