Auto suppliers get $5-billion bailout

20 Mar 2009


After automobile manufacturers, it is auto parts suppliers that have obtained a US government bailout, to the tune of $5 billion. Suppliers will get a guarantee that money owed them by the auto majors for past supplies will be paid, regardless of what happens to the car companies.

They will be required tp pay a 2-per cent fee for government-backed payment guarantees an for another 1 per cent the suppliers can exchange those receivables with the government for quick payments instead of waiting out the 45 - 60 days crdit period before getting paid.

The programme will be run through the automakers. ''It will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need,'' Treasury secretary Timothy Geithner said in the statement today.

Any US auto company can participate in the aid programme. General Motors Inc and Chrysler LLC, now largely government-owned, have already agreed to do so, according to the Treasury department statement. All US-based suppliers that ship to a participating automaker may also be included.

Auto companies will decide which suppliers, and which of their receivables, will get support. Only receivables on goods shipped after today qualify under the programme.

The Original Equipment Suppliers Association had said last month that as many as one-third of the more than 4,000 US suppliers face ''imminent financial distress''. The group represents some of the industry's biggest companies, including Delphi Corp, TRW Automotive Holdings Corp and BorgWarner Inc.

Along with the allied body Motor & Equipment Manufacturers Association, it had asked the Treasury Department $18.5 billion in aid. ''We're very grateful that they have moved on this prior to the end of the month, as we thought it was absolutely necessary,'' said Ann Wilson, a spokeswoman for MEMA.

However, a large number of parts suppliers are small and privately owned. They do not disclose their financial position, making it difficult to assess their needs, say analysts.

Hit by production cuts by automakers, duppliers asked for $18.5 billion last month and said failure to help could mean the loss of 1 million jobs in the US (See: Bailout virus spreads, auto part suppliers seek $18.5 billion)  Lear Corp., the second-largest auto-seat maker, said this month its auditors expressed doubt about its ability to keep operating, (See: Lear Corp buys time, but bankruptcy fears remain)  American Axle & Manufacturing Holdings Inc. said it might breach loan terms

Neil DeKoker, president of the Original Equipment Suppliers Association, a trade group, said he was pleased with the government's action, but noted that it addresses only two of suppliers' three requests for help. The third request - for government guarantees of commercial bank loans--was unworkable, because banks won't loan to auto suppliers under any circumstances, even with a government guarantee, DeKoker says.

This guarantee takes on added significance because there has been talk in recent weeks about General Motors entering bankruptcy - and some talk of Chrysler doing the same. Thus far, Ford Motor appears to have avoided the same dire situation, but would likely be able to tap government bailout money if it needs it.

Since year's end, the companies have received $17.4 billion in federal loans, which are expected to carry them through the end of this month. US President Barack Obama has said he is committed to helping the industry, but insists automakers and the network of companies that supply them undergo a substantial restructuring to ensure their long-term health.

Ford issued a statement about the plan, saying it ''appreciates the efforts by the US government to support the auto supply base.  This is a good step forward for the near term, and we look forward to continue working with our government leaders on the long-term restructuring of the industry. 

Chrysler LLC Senior vice president and chief procurement officer Scott Garberding said, "This decision by the US Treasury is viewed as a vote of confidence for the US auto industry and the future of our company... Chrysler supported the supplier loan request from the beginning. We will work tirelessly around the clock to get this program up and running."

In a statement, GM said it appreciated the government's quick action to improve needed liquidity for suppliers during difficult economic times. "This action can help reduce the risk of vehicle production disruptions that would occur if auto suppliers were unable to produce due to lack of access to working capital liquidity."

Shares of auto-parts companies that might benefit from the program jumped on the news. Lear jumped 85 per cent, American Axle & Manufacturing gained 45 per cent, Tenneco leapt 28 per cent and ArvinMeritor added 21 per cent.

Ford stays aloof
Ford Motor Co doesn't need to take part in the new scheme, the company said in a statement. ''We continue to pay our suppliers on time,'' Ford spokesman Todd Nissen added in an interview. ''We still think this is a good thing for the government to do, because the viability of the supply base is important for all of us.These actions support all automakers that are reliant on a healthy US supply chain.  Ford does not need to participate in the program, as we remain viable and expect no issue with continued payments to our suppliers.''

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