VOL. 124 | NO. 55 | Friday, March 20, 2009
Auto Suppliers to Get $5 Billion in Aid
By KEN THOMAS | Associated Press Writer
WASHINGTON (AP) - The Treasury Department, trying to stabilize the battered auto industry, will provide up to $5 billion in financing to troubled auto parts suppliers who are linked to Detroit's carmakers, officials said Thursday.
The funding would be made available from the government's Troubled Assets Relief Program, or TARP, said two congressional aides briefed on the plan.
The administration will create a financial entity to provide money for auto parts that large suppliers have shipped to the Big Three automakers but have not yet been paid for. In a statement, Treasury Secretary Timothy Geithner said the "Supplier Support Program" would "help stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead."
"The program 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," Geithner said.
Auto suppliers have sought up to $25 billion to stabilize the beleaguered U.S. auto industry and have met with members of Obama's auto industry task force, which is reviewing $17.4 billion in loans to General Motors Corp. and Chrysler LLC and requests for billions more.
The program will be run through U.S. automakers – General Motors, Chrysler and Ford Motor Co. – that agree to participate. Suppliers to those companies would have to agree to terms of the government-backed protection and pay a small fee for the right to participate.
The Treasury Department said General Motors and Chrysler have already agreed to participate. Auto companies would request funds from Treasury to provide government backing for the money and be required to "make a financial commitment in connection with the support received from Treasury."
In a statement, General Motors said the program could "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."
Chrysler spokeswoman Shawn Morgan declined to comment. Messages were left with Ford officials.
Suppliers will be able to sell parts that they have not yet been paid for into the government program at a modest discount.
Many of the nation's roughly 5,000 auto parts suppliers have been cash-strapped for several years as GM, Chrysler and Ford have reduced production of cars and trucks because of falling sales. Their outlook has deteriorated with the economic downturn, a steep decline in auto sales and prolonged car plant shutdowns in December, January and part of February.
Auto suppliers have said that more than 40 major suppliers have filed for Chapter 11 bankruptcy protection and more could collapse if the government does not act. Parts makers employ about 600,000 people nationwide.
"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, D-Mich.
Another Michigan Democrat, Sen. Carl Levin, said the supplier base was "critical to maintaining our domestic auto industry which, in turn, is a critical component of our economic recovery."
Some suppliers who make key parts for top-selling vehicle models could stop producing, forcing automakers to stop making those vehicles and undermining the ability of the car makers to restructure.
Parts suppliers told Treasury that the estimated March 2009 payments to suppliers from the Big Three automakers are $2.4 billion compared to an average of $8.4 billion per month in the fourth quarter of 2008, threatening their industry.
News of the aid sent supplier shares soaring in midday trading. Over the past year, their stock prices tumbled to fractions of what they once were amid the tough automotive and economic environments.
American Axle & Manufacturing Holdings Inc., Visteon Corp. and Lear Corp. have all warned in recent weeks that they could be forced to file for bankruptcy protection if business didn't pick up soon.
Meanwhile, Delphi Corp., GM's former parts division, is still trying to restructure itself after more than three years under Chapter 11 bankruptcy protection.
American Axle shares jumped 71 cents, or 46 percent, to $2.26, while Lear shares surged 56 cents, or 78 percent, to $1.28. In over-the-counter trading, Visteon shares rose 12 cents, or 75 percent, to 28 cents and Delphi rose by 2 cents, or 46 percent, to 6 cents.
Michael Ryan, president and CEO of FormTech Industries, a small steel-forging company in Royal Oak, Mich., said the government aid will help "tier one" suppliers who deal directly with automakers, but won't be of immediate aid to smaller companies further down the supply chain.
Ryan, whose company employs 440 people, said larger suppliers eventually will pass money down to their suppliers, but it may be too late for companies like his that are facing critical cash shortages due to low auto sales volumes.
Money given to the automakers has to take several steps down the supply chain to become "critical support for small suppliers like us," he said.
Ryan still would like to see government loans or guarantees for small suppliers, who would repay the loans once sales volumes return, he said.
AP Auto Writers Tom Krisher in Detroit and Bree J. Fowler in New York contributed to this report.
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