Directs $5 billion to auto parts suppliers

U. S.

March 20, 2009|By Jim Puzzanghera and Ken Bensinger | Jim Puzzanghera and Ken Bensinger,Los Angeles Times

WASHINGTON - Auto suppliers, struggling along with the entire industry in the face of the deep recession, will receive up to $5 billion in federal aid, the Treasury Department said yesterday.

The financing is intended to give suppliers confidence that they will be paid for shipments they make to automakers, including General Motors Corp. and Chrysler, both of which are teetering near bankruptcy as federal officials review their restructuring plans.

GM and Chrysler have delayed their payment schedule to vendors as their woes deepened. That threatens the viability of their myriad suppliers, which make the pistons, mirrors, fuel lines and thousands of other parts needed to build a vehicle.

Many suppliers have complained that they have not been paid at all in recent months, and Wall Street analysts have predicted that dozens would go bankrupt without some form of aid. Automotive suppliers employ at least 500,000 workers nationwide

"The program will provide supply companies with much-needed access to liquidity to assist them in meeting payrolls and covering their expenses," Treasury Secretary Timothy F. Geithner said. At the same time, he said, it would give "the domestic auto companies reliable access to the parts they need."

GM and Chrysler have received a combined $17.4 billion in federal aid and requested an additional $21.6 billion last month. A panel of experts overseeing the auto industry bailout is expected to make a decision on the request by March 31.

Ford Motor Co. has not requested government aid to date and said it wouldn't use the supplier subsidies.

The new Supplier Support Program will be run through U.S. automakers who agree to participate; it aims to protect the people who work for auto parts suppliers and, indirectly, the businesses that depend on the suppliers.

In addition, since many companies that sell parts to American carmakers also supply foreign brands such as Toyota and Honda, the program would ensure that auto production doesn't grind to a halt in the event of a bankruptcy or other major disturbance out of Detroit.

"This aid comes at a critical time for this vital industry, and I am pleased the program will be able to keep the doors open and lines operating at many U.S. auto suppliers," said Rep. John Dingell, a Michigan Democrat who has been a leading advocate for the Big Three for decades and is married to a GM executive.

Under the program, government money will back the sales of parts and supplies, guaranteeing the suppliers will be paid even if the automaker that purchased the material goes bankrupt.

Suppliers will also be able to sell their receivables into the program "at a modest discount." This will provide them more operating cash faster and potentially increase their ability to borrow money from private sources.

Normally, suppliers receive payment from automakers 45 to 60 days after shipment, and normally they can borrow money from banks against those future payments. But with extremely tight credit combined with uncertainty about the future of GM, Chrysler and even Ford, banks have been unwilling to extend the credit, the Treasury Department said.

McClatchy-Tribune contributed to this article.

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