U.S. to Aid Auto Industry With $5 Billion for Suppliers
nytimes.com
By BILL VLASIC
New York Times
Published: March 19, 2009
DETROIT — The Obama administration moved on Thursday to stabilize the American auto industry by creating a $5 billion fund to support troubled parts suppliers.
The Treasury Department said the program would guarantee payments to suppliers for products shipped to ailing car companies.
The supplier fund is the first direct action taken by President Obama’s auto task force to prop up the auto industry, which has suffered big losses from the steep decline in new-vehicle sales.
“The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period that lies ahead,” Treasury Secretary Timothy F. Geithner said in a statement.
The presidential task force is continuing to review requests for additional federal aid from General Motors and Chrysler, both of which are subsisting on government loans.
But the task force chose first to address the mounting concerns over the financial health of auto suppliers, which employ more than 500,000 workers in the United States.
“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,” the Treasury announcement said.
The program will be run through American auto companies that agree to take part, it added.
Suppliers will get a government guarantee that money owed them by auto manufacturers for parts will be paid “no matter what happens to the recipient car company,” according to the Treasury statement.
Participating suppliers will also be able to sell their receivables from car companies to the program at a discount, thus allowing them to borrow money in private markets more easily.
Many suppliers have been unable to get loans from private financial institutions because of increasingly late payments for parts by auto manufacturers.
A large number of suppliers are considered to be on the verge of bankruptcy. Failure by crucial suppliers would shut down the flow of vital parts to the auto companies and almost immediately affect their production of new vehicles.
Weak economic conditions and tight credit caused sales of new vehicles to fall 18 percent in the United States during 2008. In the first two months of this year, overall industry sales have plummeted 39 percent, compared with the same period a year ago.
The auto task force is expected to announce by March 31 whether it will extend more aid to G.M. and Chrysler, both of which nearly ran out of money to finance operations before receiving government loans.
G.M. has so far received $13.4 billion in federal loans, and has requested up to $16.6 billion in additional funds. Chrysler, which has gotten $4 billion in loans, is asking for another $5 billion. |
