Treasury gives auto parts suppliers $5 billion in loans
DETROIT -- Fearing a bottom-up failure of the auto industry if parts makers collapse, the Treasury announced $5 billion in loans for the auto suppliers in an effort to keep the industry running while the government works on a broader restructuring plan.
"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.
The funding announced Thursday are not intended to save every auto supplier or to infuse capital into ailing companies. Rather, it will either pay key GM and Chrysler suppliers' bills earlier than expected or simply guarantee that the bills will be paid, which will reassure the suppliers' creditors.
GM and Chrysler, with task force oversight, will choose which suppliers are most critical and in need of the money.
There are some made-in-America constraints on the money — the loans can go only to companies with operations in the U.S. and for parts made or assembled in the U.S.
The auto supply base — companies that make the seats, axles, door assemblies, radio systems, windshields and almost everything a consumer sees and touches in their vehicles — has been hammered in the first quarter because automakers slashed production, closed plants and slowed assembly lines to match falling sales. When suppliers don't deliver parts, they have no income. Now that production is ramping back up, many suppliers are facing a cash crunch.
"I don't know that (the loan plan) goes far enough, but it's certainly a great first step," says Brad Coulter, a director at turnaround firm O'Keefe & Associates.
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