Chemical companies tend to trade on ‘open book’ terms with long-established customers. They are also supportive when those customers are facing problems in their end-markets. In a recession, these admirable qualities can become expensive.
ICIS news reports tonight that the bankruptcy of Plastech Engineered Products in the US has led to debts of nearly $5m for 4 of the major US polymer producers. Plastech was a supplier of door panels and other items to Chrysler, and got into difficulty due to the alarming auto industry downturn chronicled here in recent months. Dow are apparently owed $1.57m, Basell $1.4m, BASF $1.02m and SABIC $970k, according to bankruptcy court documents.
CFOs and sales heads need to look urgently at their terms of trade with companies in recession affected industries such as housing and autos, as Plastech will probably not be the last company to fold. For example, as I commented 2 months ago:
“I would not be surprised if ‘cash before delivery’ soon becomes the norm for some companies. This may seem a harsh requirement, and may lose some sales in the short-term, but it is far better than standing in line for repayment after the worst has happened.”
These decisions are not taken lightly, but no chemical company can afford to take losses on this scale on a regular basis. I fear that a new generation is about to learn what some of us had the misfortune to go through in 1980-83 and 1990-2. If they can learn from our experience, and avoid some of the most extreme disasters, then everyone will benefit.