UPDATE: Auto Suppliers Face March 1 'Cash Crisis' - Trade Group
06 Febbraio 2009 - 12:53AM
Dow Jones News
Hundreds of U.S. auto suppliers are in danger of running out of
cash by March 1, when they will begin to sustain losses caused by
production slowdowns in December and January, according to a trade
group representing 400 parts makers.
In making a case for $25.5 billion in federal aid for the
reeling supplier industry, the Motor & Equipment Manufacturers
Association said parts makers face an imminent "cash crisis"
without government aid.
Payments to suppliers from Detroit's auto makers are on track to
fall 70% in March - to $2.4 billion from $8.4 billion per month in
the fourth quarter - after the companies all but halted production
in January amid skidding sales. Payments are due 45 to 55 days
after parts are delivered, which is why the crunch will hit in
March.
Nearly one-third of auto suppliers are in financial distress and
another third expect to be by the end of the first quarter,
according to the trade group. Last year, about 40 auto supply
companies filed for Chapter 11 bankruptcy protection.
Without more money, the group says, suppliers won't have money
to buy raw materials to produce more parts, forcing costly work
stoppages among domestic and foreign-based manufacturers with U.S.
operations.
"We don't know how that would propagate through the industry,"
said David Andrea, vice president of industry analysis and
economics for the Original Equipment Suppliers Association, which
is supporting the request. "It will be a bottom-up implosion."
The Motor & Equipment Manufacturers Association in a
statement Thursday said it has yet to formally request funding from
the U.S. Treasury Department. Supplier trade groups, however, have
been in communication with the Treasury, the administration of
President Barack Obama and members of Congress about addressing
issues faced by parts makers.
"We have had constructive conversations with Treasury and
elected officials in Washington, but no official request has been
submitted at this time," said Bob McKenna, chief executive officer
of the manufacturers association, said in the statement. "Suppliers
now face unprecedented challenges that have created a crisis in our
industry with consequences for the nation's economy as a
whole."
The Original Equipment Suppliers Association's Andrea
acknowledged the U.S. supply base is in need of downsizing as
General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLC race
to downsize as part of survival plans.
But allowing cash-starved companies to go bankrupt within weeks
will lead to a chaotic chain of events rather than an orderly
reorganization of the industry, Andrea said. Auto suppliers are
making their case to a bailout-weary public and government.
The $25.5 billion in needs outlined by the supplier group would
outdo the $17.4 billion bailout for GM and Chrysler awarded by the
Bush administration after high-profile hearings on Capitol Hill and
a rejection by the Senate.
GM and Chrysler have until March 31 to prove they can become
viable without government aid or risk losing the money.
Auto suppliers, though less high-profile than Detroit's auto
makers, comprise a much larger economic machine. Auto suppliers
employ around 600,000 U.S. workers, roughly three-quarters of the
nation's automotive industry employment, according to a Chicago
Federal Reserve study.
In a request dated Monday, the suppliers ask for $7 billion in
federal funds to create a "quick pay program" to help auto makers
make payments within 10 days of receiving parts, instead of the 45
days or more they typically take to pay.
The group also wants $10.5 billion to guarantee receivables of
suppliers whose customers have taken federal loans, which means GM
and Chrysler. The guarantee would provide a backstop to
commercial-lending losses on loans to suppliers. Lastly, the
suppliers want $8 billion in direct access to federal loans.
-By Sharon Terlep; Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com.