Thursday, February 5, 2009

U.S. Auto Suppliers May Seek $25.5 Billion in Aid...


U.S. Auto Suppliers May Seek $25.5 Billion in Aid for Industry

By Alex Ortolani

Feb. 5 (Bloomberg) -- U.S. auto-parts suppliers, struggling with losses as sales dwindle, may seek as much as $25.5 billion in government aid to prevent an industry collapse.

Three proposals for federal action could be used together or separately to shore up partsmakers, the Motor & Equipment Manufacturers Association trade group said today in a statement. A presentation to the Treasury Department this week spelled out amounts for each program that weren’t given in the statement.

The appeal for help is aimed at widening the Treasury’s commitment to the auto industry as the U.S. market sinks to its lowest since the early 1980s. General Motors Corp. and Chrysler LLC are working to avert bankruptcy with $17.4 billion in loans and face a Feb. 17 deadline to prove they’re viable.

“When one aspect of the automotive market fails, especially with its just-in-time structure, it ripples across the industry rapidly,” said Mary-Beth Kellenberger, a Toronto- based analyst with consulting firm Frost & Sullivan.

A $10.5 billion aid program was the costliest of 3 “bridge solutions” in the trade group’s 11-page presentation to the Treasury Department this week. That document didn’t indicate that the programs might all be used, for a total of $25.5 billion. They were labeled “options” in today’s statement.

Calls and e-mails to the Treasury Department for comment weren’t immediately returned.

About 40 U.S. suppliers filed for bankruptcy last year, according to the trade group’s presentation. The “stress is now compounded” after automakers bought fewer parts because of extended plant shutdowns in December and January, MEMA said.

‘Closing Entire Companies’
“Without appropriate action, automotive suppliers will be unable to return to required operations in March 2009 without shuttering facilities or closing entire companies,” according to the trade group, which is based in Research Triangle Park, North Carolina.

One scenario for aid would be for GM and Chrysler to have access to a $7 billion revolving line of credit created from the Troubled Asset Relief Program to pay suppliers faster than usual. Payments could be made 10 days after parts are shipped, instead of the usual 45 to 55 days, the trade group said.

A second suggestion would be for the government to guarantee promised payments from automakers should one of them file for bankruptcy or be unable to pay. That would provide about $10.5 billion in available funding, helping suppliers use the promised future payments as collateral for bank loans, according to the presentation.

Under the third proposal, $8 billion of TARP funds would be made available to suppliers in need of capital. That scenario also includes the option of commercial banks being called on to use TARP funding to provide credit to partsmakers.

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