The collapse of First Brands, one of North America’s largest manufacturers of automotive fluids and chemicals, has sent ripples through Canada’s trade credit insurance market, highlighting the delicate interconnection between supply chains and financial stability in the automotive sector.
When First Brands Group filed for Chapter 11 bankruptcy protection last month with debts exceeding $1.3 billion, suppliers across Canada weren’t caught completely off guard. Trade credit insurers had already begun reducing or eliminating coverage months earlier—an early warning system that industry insiders recognize as the canary in the coal mine.
“The insurers always know first,” explained Matthew Wells, National Practice Leader at Marsh Specialty Canada. “Underwriters pull back coverage when they detect financial instability, often before it becomes public knowledge. For suppliers in Canada who relied on First Brands as a significant customer, this created immediate challenges in credit management.”
First Brands’ decline illustrates the cascading effect of supply chain disruptions that began during the pandemic. The company, which owns well-known brands including FRAM filters and Prestone antifreeze, struggled with inventory management and margin erosion as consumer spending patterns shifted dramatically over the past three years.
For Canadian parts manufacturers and chemical suppliers, the bankruptcy represents more than just unpaid invoices. Many now face difficult decisions about continuing to supply critical components to First Brands’ operations during restructuring, with limited or no payment guarantees.
“What we’re witnessing is a stress test of Canada’s trade credit market,” said Elizabeth Stephens, Senior Risk Analyst at CO24 Business. “When a major player falters, it exposes vulnerabilities throughout the entire ecosystem.”
The automotive sector, a cornerstone of Canadian manufacturing, appears particularly vulnerable. Data from Export Development Canada reveals that suppliers to automotive manufacturers have seen trade credit insurance premium increases of 15-20% in the past year alone, reflecting heightened risk perception among underwriters.
Trade credit insurance, which protects suppliers against customer non-payment, has become increasingly essential in Canada’s current economic environment. The First Brands situation demonstrates how quickly fortunes can change in interconnected global industries.
“Many Canadian suppliers are now reviewing their credit management strategies,” Wells noted. “This includes diversifying customer bases, negotiating more favorable payment terms, and investing in more comprehensive credit intelligence.”
The situation also reveals an interesting paradox: while automotive fluid demand remains relatively stable, the companies manufacturing these essential products face structural challenges related to cost pressures, distribution changes, and private equity ownership models that prioritize debt-fueled acquisition strategies.
For Canadian businesses monitoring the First Brands reorganization, the key lesson isn’t just financial vigilance but strategic positioning. Those who recognized the early warning signals from credit insurers had more time to adapt their exposure and protect their balance sheets.
As First Brands works through its restructuring plan, Canada’s trade credit market continues adjusting to what industry observers describe as a “flight to quality” among underwriters. The message is clear: in today’s volatile market, financial health signals matter just as much as product quality, and the insurers are watching closely.
