Credit Herald

The Treasury Department will pump up to $5 billion in financing into troubled auto parts suppliers to prevent an auto industry collapse that could undermine the government’s work to restructure General Motors and Chrysler.

The funds, announced Thursday, will be made available from the government’s Troubled Assets Relief Program in a financial entity similar to a revolving credit. Duppliers would be eligible for financing auto parts they have shipped to carmakers but have not yet received payment.

U.S. automakers — General Motors Corp., Chrysler LLC and Ford Motor Co. — will have the option of using the program and designate the companies that need financing, giving them a large role in determining which parts suppliers will survive.

GM and Chrysler, which have received $17.4 billion in government loans, said they would use the program. Ford, which has not sought the government aid, said in a statement that it would not participate "as we remain viable and expect no issue with continued payments to our suppliers."

The action was intended to help with the cash flow needs and stability of distressed auto suppliers, whose collapse could lead to the disruption of car production by the Big Three.

Members of the auto task force, who spoke on condition of anonymity because their discussions have been private, said the financing was a first step in restructuring the car industry. They expect to provide a framework for revamping GM and Chrysler by March 31.

"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," Treasury Secretary Timothy Geithner said fast cash online.

Officials said foreign automakers with U.S. operations would not be eligible for the so-called "supplier support program."

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 if business didn’t pick up soon. And Delphi Corp., GM’s former parts division, is still trying to restructure itself after more than three years under Chapter 11 bankruptcy protection.

Parts suppliers told Treasury that the estimated March 2009 payments to suppliers from the Big Three automakers are $2.4 billion, compared with an average of $8.4 billion per month in the fourth quarter of 2008, threatening their industry.

Suppliers who ship parts to car companies typically receive payment for those shipments about 45 to 60 days later. Under normal credit conditions, suppliers sell or borrow against those commitments to pay their workers and fund their operations.

But banks have been unwilling to extend credit to suppliers because of the uncertainty of the auto companies, so the government entity will help parts suppliers access financing.

Under the program, auto companies will be required to pay a 5 percent fee of up to $250 million to join. Suppliers will have to agree to terms and pay a small fee to participate. Suppliers will be able to sell parts they have not yet been paid for into the government program at a modest discount.
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