Auto parts makers see chaos without government aid
By TOM KRISHER and KEN THOMAS, Associated Press Writers
DETROIT, Feb. 5, 2009 (AP): Many of the nation's auto parts suppliers are edging close to running out of money, with trade associations saying government loans are needed to keep the U.S. auto industry from falling into chaos.
Two trade groups, the Original Equipment Suppliers Association and the Motor & Equipment Manufacturers Association, are talking with the Treasury Department about getting up to $25.5 billion in government aid. The bailout would prevent a shortage of critical parts that could halt production of some key models, they claim.
The troubles, sparked by production cuts at nearly all North American automaker factories, may be the next crisis the Obama administration will need to tackle amid deepening economic woes.
Suppliers made an initial request for $7 billion that would go to automakers so they can speed up payments to parts companies and help them get through the next 45 days. The groups also asked that the government guarantee $10.5 billion in longer-term payments that General Motors Corp. and Chrysler LLC will owe suppliers in the future. GM and Chrysler are surviving on $17.4 billion in government loans of their own.
The supplier groups also have asked for $8 billion in federal loans to parts makers.
Treasury spokesman Isaac Baker had no immediate comment on suppliers seeking government aid.
Many of the nation's roughly 5,000 parts makers have been cash-strapped for several years as General Motors Corp., Ford Motor Co. and Chrysler LLC scaled back production of cars and trucks to match falling sales.
Later this month and in March, suppliers will start to see revenue from automakers slow to a trickle due to plant closures in much of December and January.
Suppliers normally are paid 45 days after delivery, so the flow of cash from November and early December deliveries will soon run out, said Dave Andrea, vice president of analysis and economics for the Original Equipment Suppliers Association. And because automakers didn't need parts while their plants were down, suppliers won't receive payments for late December and January.
``If they don't do something, we're going to have catastrophic results in the auto industry,'' said Ann Wilson, senior vice president for government affairs for the Motor & Equipment Manufacturers Association, who added that many suppliers ``don't know if they have enough cash to operate in March.''
Some suppliers who make key parts for top-selling models could stop producing, forcing automakers to stop making those vehicles, placing them further in financial peril, Andrea said.
``That's where you can have chaos and unintended production problems,'' he said. ``This isn't just with Ford, GM and Chrysler. This is throughout the entire North American vehicle production.''
Parts makers, which employ about 600,000 people nationwide, know their ranks will have to be thinned as the U.S. auto market continues to shrink, but Andrea said government money would make the process orderly.
Suppliers typically borrow from banks to pay expenses until the cash starts flowing again, but banks aren't lending, so many parts makers could face filing for Chapter 11 bankruptcy protection or even liquidation, Andrea said.
``We don't have the traditional safety net of the commercial banking system,'' he said.
Wilson said supplier officials are talking with Treasury ``on what a package might look like for the supplier industry.''
They have been making the case to Treasury and the Obama administration that suppliers are interconnected with domestic auto makers. The collapse of several auto parts suppliers could cause broad problems for car makers and the economy.
``We're not asking for blanket protection from change, but we have to have certain component manufacturers out there if we're going to have a domestic auto industry,'' Wilson said.
Wilson and Andrea said they haven't made a formal submission to the Treasury.
Any loans to suppliers would further extend the government's bailout of GM and Chrysler into the realm of suppliers. The Bush administration set aside the $17.4 billion in December to keep the two companies afloat after Congress failed to pass loan legislation.
Many Republican lawmakers opposed the bailout, saying it would fail to bring necessary restructuring and would lead to requests from other distressed industries.
Jim Gillette, director of financial services at auto industry consultant CSM Worldwide in Grand Rapids, said with U.S. auto sales dropping 37 percent in January and 18 percent in 2008, there's not enough production to support all the suppliers out there.
``I believe at least 12 percent of suppliers that were in business in 2008 will be out of the business in two years or merged into other companies,'' he said. ``It could be as high as 25 percent. There's just not enough demand.''
Also Tuesday, five Democratic senators led by Debbie Stabenow of Michigan sent a letter to President Barack Obama urging him to appoint a committee to oversee restructuring of GM and Chrysler.
The companies have taken $13.4 billion in government loans, but face a Feb. 17 deadline to submit viability plans to the government to get the remaining $4 billion.
Automakers have been waiting for Obama to appoint a ``car czar,'' who would oversee restructuring and perhaps change terms of the loans that require concessions from unions, debtholders and others.
AP Economics Writer Martin Crutsinger in Washington, D.C., and Auto Writer Kimberly S. Johnson in Detroit contributed to this report.