The Obama administration announced last week a $5 billion financing plan to aid struggling auto suppliers, the first move by the president toward a broader rescue of the U.S. auto industry.
The Supplier Support Program will use a trickle-down method of funneling the money through Detroit automakers to their direct suppliers. General Motors Corp. and Chrysler LLC will take part, but Ford Motor Co. has yet to decide whether to participate.
The Treasury Department said the program was not meant to save every firm, saying that “the failure of certain suppliers is a natural, albeit painful, part of the business cycle.”
“But as the restructuring process moves forward, the Obama administration is committed to helping stabilize the industry, protect American jobs, and give consumers the confidence and the means to purchase cars,” the Treasury said in a statement.
With industry analyst firm Grant Thornton recently predicting that up to 500 U.S. auto suppliers are on the brink of failure, rescuing the auto supply chain had risen to the top priority for the Obama administration’s auto task force. The weakest U.S. sales in four decades triggered massive cuts in production over the past few months, leaving suppliers struggling for cash.
In normal times, a supplier gets paid between 45 and 60 days after shipping a part to an automaker, and can use the promise of that payment as collateral for loans. But in recent months, the collapse of credit markets and the troubles at GM and Chrysler have made lenders unwilling to trust those promises.
The program will offer suppliers two ways to benefit. It will guarantee the payments from automakers to suppliers, easing the concerns of lenders. Auto suppliers may also sell the payment to Treasury at a slight discount for an immediate cash infusion.
The offer only applies to parts shipping March 19, and can be used by “U.S.-based” suppliers and automakers. It also gives the automakers the power to decide which suppliers and which parts are eligible.
The Treasury said GM and Chrysler had agreed to take part, and had contributed an undisclosed amount of money toward the $5 billion fund. Ford has said it did not want to take government assistance, and if it were to sign up for the supplier program, it would apparently face the same restrictions on executive compensation and other rules that GM and Chrysler do.
