The Economy

Going, Going, Gone

Dec. 21, 2004

Expect more manufacturers to declare bankruptcy.

Feeling the effects of a slow-growth economy, alleged unfair foreign-trade practices, and large debt loads, among other forces, an increasing number of manufacturers and other U.S. businesses are likely to file for bankruptcy protection during 2001. How many more, says E. Han Kim, a professor at the University of Michigan's Business School in Ann Arbor, depends on whether the current U.S. economic downturn ends in a soft or hard landing. The harder the landing -- including an out-and-out recession -- the more bankruptcy filings are likely to occur. In 2000, 176 publicly traded companies filed for Chapter 11 bankruptcy protection -- 27 of them manufacturers, reports Bankruptcy-Data.Com, an online service of New Generation Research Inc. The current "poster boy" for financially distressed U.S. manufacturers is LTV Corp., the Cleveland-based steel company that filed for bankruptcy protection during the waning days of 2000. LTV's filing, under Chapter 11 of the U.S. bankruptcy laws, was the ninth time that a major U.S. steel producer had sought bankruptcy-court protection during the last two years, figures the Daily Bankruptcy Review, a news-letter for investors. "The steel industry cases are huge and certainly draw a lot of press," observes Thomas J. Salerno, Phoenix-based cochair of the reorganization and restructuring practice of Squire Sanders & Dempsey LLP, a law firm headquartered in Cleveland. But the steel industry cases are far from the full story. A pride of experts, including management consultants, lawyers, and academics such as Michigan's Kim, expect the field of bankruptcy filings to widen this year. Indeed, in the footwear industry Converse Inc., a leading U.S. maker of sneakers, has at least temporarily lost its competitive bounce. The North Reading, Mass.-based company filed for bankruptcy protection on Jan. 22. "This is far more than a steel-industry phenomenon," stresses Portland, Oreg.-based Melissa Kibler Knoll, a corporate recovery partner in KPMG LLP's global-financial-strategy practice. For example, she says "there are currently several apparel and textile manufacturers that are involved in bankruptcy proceedings, and others [for which] there are indications there might be something happening in the future." Foreign competition will continue to be "a big problem" for U.S. apparel producers, as it will for steelmakers, she notes. "The entire globalization of our economy is one of the things that is not going to change, and that's affecting a lot of these companies." Automotive-parts producers and scrap-metal and metal-refining firms also are possible bankruptcy-protection filers during 2001, says William F. Gray, a bankruptcy partner in the New York office of Salans, a multinational law firm. And, because of continuing legal claims against them, he expects to see some additional companies that once made asbestos-containing products file bankruptcy petitions. Semiconductor makers and some oil- and gas-related businesses also are bankruptcy-protection candidates, adds the Daily Bankruptcy Review. Among nonmanufacturing firms, it counts telecommunications service providers and dot.coms -- no surprise -- as candidates for bankruptcy-protection filings in 2001. Bankruptcy is a technique that companies can use to deal with their financial difficulties "and [it] can certainly have very positive advantages in terms of the companies' survival," states KPMG's Knoll. "But there are also a lot of things these companies can be doing outside the bankruptcy process" to help rescue their businesses, she emphasizes. Focusing on cash, and setting reasonable expectations and meeting them, are two of the "good business practices and techniques" that companies would be well advised to employ, she suggests. In fact, "every manufacturer has to evaluate how to protect their business in this economy and in this credit environment," stresses Dominic DiNapoli, New York-based managing partner of PricewaterhouseCoopers' business-recovery practice. That means, he says, being "honest with yourself" and determining whether or not customers consider your products essential; determining what your customers' inventory levels are; and determining in your own factories whether you must upgrade production systems and equipment now or can put off those purchases. In short, DiNapoli is saying, know yourself. Know your position in your industry. And know your break-even point.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.