Judging by the number of firms going belly up, you might think Main Street is hurting. But the data doesn’t tell the whole story.

In February, as many as 213 US small businesses filed for Chapter 11 bankruptcy, according to data from bankruptcy-tracking firm Epiq reported by The Wall Street Journal on Tuesday. That marks a nearly 80% jump from the same month a year ago. But don’t be too alarmed: There’s a reason for the sudden bankruptcy season.

Expiration Date

World-changing events tend to have yearslong ripple effects and, like pretty much everything else these days, the root causes of the bankruptcy surge can be traced back to — what else? — the Covid-19 pandemic. Bankruptcy was previously viewed as a long, arduous, and expensive process for small businesses to endure. And filing hardly guaranteed success: Between 2008 and 2015, only about 27% of the 18,000 small businesses that filed for Chapter 11 received a judge’s approval for their restructuring plans, bankruptcy lawyer Bob Keach told Congress in a 2019 hearing. Instead of filing, most failed businesses simply opted to liquidate and pay back creditors.

But in 2019, Congress passed the Small Business Reorganization Act to make filing easier. That law, which went into effect in February 2020, expedited certain processes and eliminated expensive filing fees — and, crucially, allowed businesses with up to $2.7 million in debt to propose repayment plans and earn a fresh start. Not long after, as the pandemic sank in, Congress expanded the threshold to small companies with as much as $7.5 million of debt.

The Covid-era rule changes — coupled with inflation-era interest rate hikes — have added a sense of urgency to struggling small businesses:

• The $7.5 million debt threshold is due to expire in June, at which point it will revert to the previous $2.7 million limit, though with an adjustment for inflation. In December, however, the American Bankruptcy Institute wrote a letter urging Congress to make the expanded $7.5 million limit permanent, and last week bipartisan lawmakers introduced a bill to delay the June sunset by another two years.
• But more companies are filing now before the threshold expires, Akerman bankruptcy partner Eyal Berger said at a recent American Bankruptcy Institute event. The deadline comes just as small businesses face repayment pressure for the “economic injury disaster loans” they received during the pandemic.

Adding Up: A full 7,500 small businesses have filed for Chapter 11 using the benefits of the tweaked law, known as Subchapter V. And last year, small businesses filing under the subsection accounted for 45% of all bankruptcy filings, according to data analyzed by University of Illinois Law professor Bob Lawless (data from the previous three years of the law were unreliable, so it’s unclear if this is a marked increase). While we’d like to say there’s never a good time to declare bankruptcy, there may finally be an exception to that rule.

Apple must be feeling a little green about its China business. 

iPhone sales fell nearly 20% in the first quarter, with many consumers flocking to three domestic rivals, according to data from market research firm Counterpoint.

Crabapples

Tim Cook & Co. had been a shining example of an American enterprise succeeding in the Middle Kingdom until the US and China entered a trade war in 2018 that seems to escalate with each passing day.

Not only is Apple a target of Chinese legislation that bans foreign devices in state-backed firms and government agencies, but consumers have steadily shifted toward local smartphone makers that offer more novel designs, unique AI capabilities, and substantial hardware upgrades between each generation of phones. 

It’s a running gag that Apple will debut a new iPhone every year with very minor improvements but people will still buy it anyway. However, that brand loyalty is subsiding in China, where Apple just experienced its worst quarter since 2020:

• China’s total smartphone sales grew 1.5% year-over-year. China-based Vivo saw its sales decrease less than half a percentage point but still managed to be the top-selling smartphone company, followed by domestic rival Honor and then Apple in the No. 3 slot. Counterpoint called it “the most competitive quarter ever.”
• Huawei, which was on the brink only a few years ago due to US sanctions denying it access to foreign semiconductor technology, has returned to Chinese markets with a vengeance. Huawei saw its phone sales jump a whopping 70% in the first quarter. The success can be attributed to its 5G-capable Mate 60 series, which uses a Chinese-made chip that even US Commerce Secretary Gina Raimondo called “incredibly disturbing” shortly after its launch in September. 

But She’s Got a New Hat: Even though its China sales are in flux, Apple remains the second most valuable company in the world with a market cap of $2.57 trillion. China is still its third-largest market, generating $73 billion in sales last year. And by market close on Tuesday, its share price was up 0.6% It has more than enough potential to bounce back. Researchers at Counterpoint suggested something as simple as offering the iPhone in a few more colors could be enough to start turning heads again. Might we suggest Granny Smith Green?

Climate change or no, US consumers don’t have much truck for EVs. 

After pivoting from electric vehicles in the face of soft demand, General Motors posted its biggest earnings beat in a year on Tuesday, with first-quarter profit jumping nearly 25% to almost $3 billion. Revenue also blew past analysts’ estimates, rising more than 7% to $43 billion. The company’s stock rose 4.4% in Tuesday trading.

Truckin’

GM’s strong quarter essentially crystallizes the current auto-industry zeitgeist. The transformation to EVs hasn’t gone according to plan, with early adopters snapping up models left and right, and the rest of us deciding to wait for prices to come down. That’s meant a hard pivot for automakers that were preparing for an EV wave that never came — including GM, which has pulled back from developing more standard EV models as well as slowing the roll on its Cruise driverless-car business, all of which were losing money. Fortunately, there’s still a willing US consumer for trucks:

• GM said it grew market share across several pickup and SUV models, despite pricing incentives that were “well below” the industry average. GM’s large-size Chevrolet Silverado and GMC Sierra both gained US market share at the expense of models from Ford and Stellantis, as did GM’s new small SUVs, including the Chevrolet Trax and the Buick Envista.
• The steadiness of the “inflation, shminflation” US consumer also was a boon. “Our consumer has been remarkably resilient in this period of higher interest rates,” CFO Paul Jacobson said during a media call. “We think, in this environment, we can continue to perform.”

A Little Trouble in Big China: In China, GM has the opposite problem. Cheap EVs are bringing about a legitimate transition in the Asian nation — more than half of the EVs on roads around the world are in China. That’s led to dwindling market share for US companies over the past 10 years, including GM, which reported a Q1 loss of $106 million in China. CEO Mary Barra said GM “remains committed” to the region, but whether the Chinese consumer is committed to GM will become clearer with each successive earnings report.