US auto suppliers seek rescue as crisis deepens

US auto suppliers seek rescue as crisis deepens
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First Published: Fri, Feb 06 2009. 11 34 AM IST
Updated: Fri, Feb 06 2009. 11 34 AM IST
Detroit: US auto suppliers said on Thursday the industry was in talks with the U.S. Treasury to secure emergency funding to avoid a wave of bankruptcies and a deeper crisis for cash-strapped automakers.
The talks between the parts suppliers and the Obama administration come as General Motors Corp and Chrysler LLC race to meet a 17 February deadline to show US officials they can be made viable after receiving $17.4 billion in aid.
Auto suppliers have presented three options to US officials as they press for a bailout that would follow and extend the government support for GM and Chrysler and their affiliated finance companies.
Taken together, the supplier proposals include requests for some $25 billion in assistance, an amount that would double the US government’s commitment to the auto sector at a time when sales are at their lowest since the early 1980s.
Auto parts industry representatives stressed no formal proposal has been submitted to the US Treasury and the amount and form of the assistance remained to be determined.
But Bob McKenna, president of the Motor & Equipment Manufacturers Association, which represents some 400 suppliers, warned that the parts industry has been shut off from credit at a time when payments from automakers are declining rapidly.
“Without immediate credit availability, an onslaught of supplier company bankruptcies is inevitable in the coming weeks and months, which would have a devastating, long-term effect on the US economy,” he said in a statement.
Liquidity crisis
Auto parts suppliers have come under intense pressure from tight credit conditions and from plant shutdowns by major automakers at the end of last year and the beginning of 2009.
Projections from parts suppliers show payments to the companies are on track to drop to just $2 billion to $3 billion in March because of the near total shutdown in auto production at the start of the year, according to MEMA data. Suppliers had been receiving between $8 billion and $9 billion per month.
Industry analysts and auto executives expect hundreds of auto parts suppliers to be forced into bankruptcy.
A draft proposal for assistance prepared by auto suppliers and shared with the US Treasury had outlined potential aid that could be channeled through the automakers and allow them to pay receivables more quickly.
Current payment terms from the automakers can range up to 60 days. To improve cash flow, the industry has proposed the idea of using government assistance to allow automakers to expedite payment to 10-day terms.
Suppliers have also proposed using a government guarantee to cover their receivables with GM, Chrysler and Ford Motor Co , or using the Troubled Asset Relief Program to make direct loans to key companies in the sector.
Over the longer term, automakers and analysts see no option, but brutal consolidation for the parts sector, accelerating a trend already reshaping the industry.
The number of suppliers has already dropped to about 5,000, one quarter of what it was in 1990, according to statistics from the Original Equipment Suppliers Associations.
Ford purchasing chief Tony Brown met with suppliers on Monday and urged them to push ahead with a restructuring that would reduce the number of players, according to a spokesman.
The meeting was previously scheduled and Brown shared his view on how Ford needs to reduce the number of suppliers it works with, a plan the automaker has been working on for a number of years, Ford spokesman Todd Nissen said.
The auto supply industry, which employees more people directly than auto manufacturers, joined automakers in lobbying for the first round of federal assistance.
Chrysler has asked for another $3 billion in aid. Ford Motor Co has asked for a $9 billion credit line it could tap if market conditions prove worse than its forecast.
Auto supplier difficulties have the potential to quickly shut down car and truck production, executives have warned.
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First Published: Fri, Feb 06 2009. 11 34 AM IST
More Topics: Autos Suppliers | Automakers | US | Recession | Bailout |