Auto parts suppliers are seeking federal aid

U.S. auto parts suppliers are working with the Treasury Department and the Federal Reserve to develop a lean-heavy federal aid program that could help them survive the worst industry downturn they have ever faced. The federal assistance could be as high as $20.5 billion, says Robert E. McKenna president and CEO of the Motor & Equipment Manufacturers Association, which represents 700 auto parts suppliers.
Auto parts suppliers are facing first-quarter North American production cuts of more than 40%, according to an economic analysis by Global Insight of Waltham, Mass. Without aid, many more part suppliers are in danger of filing for bankruptcy protection such the 40 major suppliers who filed for Chapter 11 reorganization in 2008.
MEMA and the Original Equipment Suppliers Association put out a press statement last Friday that they are exploring options to address the immediate cash needs and longer term viability of the motor vehicle parts supplier industry. McKenna tells Purchasing.com in an interview today that the associations “have been in active communication with the U.S. Department of the Treasury, members of Congress and the Obama administration to address the financial urgency faced by suppliers” but no formal request has been submitted.
The federal government has pledged $24.9 billion to General Motors, Chrysler and their captive finance companies. Another $25 billion has been kept for supplier and automaker plant retooling and committed funding to free up credit for consumer loans, including those to vehicle buyers. “Still, somewhere between one quarter and one third of the auto parts suppliers are in financial jeopardy,” McKenna says. “We are trying to develop financial assistance in a very complicated environment,” he says, “because there are lots of pieces to the financial puzzle that have to come together.”
MEMA estimates that because of assembly cutbacks the Detroit 3 (GM, Chrysler and Ford) will spend this quarter as little as half the normal $15 billion in monthly purchasing for parts--“and that has created problems for parts makers with their bank covenants, lending and credit requirements, and guaranteeing of receivables,” McKenna says.