U.S. Auto Suppliers’ Industry Aid Request May Reach $25 Billion

General Motors Co. Hummer H3 vehicles sit parked in a storage lot at the Port of Newark in Newark, New Jersey on Jan. 29, 2009. Photographer: Daniel Acker/Bloomberg News

Feb. 6 (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, the Motor & Equipment Manufacturers Association trade group said in a statement yesterday. 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 yesterday’s statement.

No companies were named in the presentation. The group represents companies such as Lear and American Axle & Manufacturing Holdings Inc., which posted a combined $800.3 million in fourth-quarter losses last week, in part due to lower vehicle output in North America.

‘Constructive Conversations’

“No official request” for help has been submitted yet, MEMA Chief Executive Officer Bob McKenna said in the e-mailed statement. “We have had constructive conversations with Treasury and elected officials in Washington.”

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

The U.S. automakers share many of the same suppliers. More than half of the partsmakers used by GM also sell to Chrysler and Ford Motor Co., according to the presentation. Many also provide parts for Asian and European car companies.

The industry experienced a major supplier shutdown when workers struck American Axle for three months last year, forcing GM to slow or halt as many as 33 North American plants at a projected cost of about $2.6 billion. Partsmakers including Lear Corp. were disrupted.

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.

‘Looking at Options’

“We’re looking at options to help the cash flow to suppliers as they face production shutdowns that will impact the amount of receivables in February and March,” said David Andrea, vice president of the Original Equipment Suppliers Association trade group. He wouldn’t comment on the plan from MEMA, which represents the equipment-maker group in Washington.

Automakers including GM, Chrysler and Ford have an estimated $2.4 billion in March payments to suppliers compared with a monthly average of $8.4 billion in last year’s fourth quarter, according to the MEMA presentation.

To contact the reporter on this story: Alex Ortolani in Southfield, Michigan, at aortolani1@bloomberg.net

Last Updated: February 6, 2009 00:01 EST
By Alex Ortolani

Source: Bloomberg

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