Opening any of our industry's newsletters may lead you to the assumption that the aftermarket has entered a new chapter; specifically,
Chapter 11. Just this week, I was reading about two new companies that had joined the Chapter 11 club. And that was just what
was on the front page.
The sheer volume of bankruptcies of late is stunning and begs the question, "How did we get to this?" The spate of filings
is a reckoning of many issues, not the least of which is uninspired and shortsighted management. Consider these: In the late
1970s a high-profile CEO proclaimed, "We will never recognize program groups." In the 1990s another renowned leader stated
steadfastly, "We will not allow our national brands to be sold by retailers." And earlier this decade a highly respected CEO
publicly stated, "You will never see our parts for sale on the Internet."
Such shining examples of "inside the box" thinking may serve as an omen of companies that will seek Chapter 11 protection.
But I want to be careful not to paint all reorganizations with the same brush. There is not a single causal factor, and not
all Chapter 11 filings are the fault of sitting management. Contributing factors can include sudden loss of business, legacy
costs, fallout from venture capitalists gutting companies, the strategy of squeeze (squeezing aggressive concessions from
suppliers) and many others.
Regardless of which of these factors or others have contributed to mounting Chapter 11 filings, the fact remains that living
with companies so encumbered is a new reality. The "stigma" once attached to being "bankrupt" has changed. There was a time
when a supplier or reseller in bankruptcy was about as attractive as a Pontiac Aztek. But as the realities of the new financial
environment are changing the landscape, that stigma has been mitigated. Think about these two things: 1) Companies as diverse
and prestigious as Delphi, Federal Mogul, Dayco, Holley, Dana, Proliance and Remy have been through or are currently going
through a financial reorganization. In each case, they emerged or will emerge stronger than before; and 2) The aftermarket
needs multiple, viable suppliers in every category to maintain the healthy competition so vital to our free-market economy.
As businesspeople, we must have a renewed focus on financials. Whether considering a new supplier or channel partner, an acquisition,
a joint venture or any other type of close relationship, we must perform meticulous due diligence. There was an old sharecropper
saying that went something like this: "Before you go in double yoke, look to the other horse." When an otherwise good trading
partner files for Chapter 11 reorganization...don't panic. Chances are you'll have a stronger ally after the procedure.
Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore, a
SEMA board member, can be reached at
President, Bob Moore & Partners