Auto Parts Suppliers Get Limited U.S. Government Backing
Auto parts suppliers got a welcome glimmer of good news on March 19 in the form of a $5 billion U.S. Treasury Department program to help suppliers get access to much-needed cash.
The $5 billion program is only a glimmer, because on Feb. 16, the Washington-based Motor & Equipment Manufacturers Association and its affiliate, the Original Equipment Suppliers Association, had asked Treasury for much more. According to Automotive News, the suppliers were looking for $18.5 billion (subscription required).
Still, the program is a positive note for the battered auto parts supplier sector, which will take any positive news it can get. MEMA said more than 40 major suppliers filed for Chapter 11 bankruptcy protection in 2008.
With this week's announcement, the auto parts supplier groups got U.S. government guarantees to back up their receivables from the car companies. Government guarantees mean the suppliers can use car company IOUs, for parts that have been delivered but not yet paid for, as loan collateral with lenders. The Treasury Department also offered to purchase receivables, which would provide cash directly.
"This is a tremendous step toward stabilizing the supply base, which will benefit the domestic automotive manufacturing industry," said MEMA President Bob McKenna, in a written statement. MEMA and its affiliates represent more than 400 companies, including about 65 percent of sales for North American suppliers.
Another important aspect of the so-called Auto Supplier Support Program is that the supplier receivables are guaranteed by the government even if the car companies go bankrupt.
It's kind of chilling that the suppliers would even need that sort of guarantee, but bankruptcy is still a real possibility for Chrysler and GM, while auto sales continue at the lowest level in decades. The Obama Administration is reviewing restructuring plans for Chrysler and GM, as those two companies seek additional government help. So far, Ford has avoided a government bailout, beyond help with developing more fuel-efficient cars.