04 March 2009

Moving On Down the Line: Auto Parts Makers Follow Auto Makers To Government Trough

Original Story Posted in The Wall Street Journal.

Beleaguered auto-parts suppliers are following the lead of Detroit's Big Three in seeking aid from the federal government.

In a request dated Monday to the Treasury Department, an industry group representing 400 parts makers asks for $25.5 billion in aid and guarantees.

"Without immediate assistance to suppliers, the country will face massive job losses and the eventual breakdown of the entire automotive sector in the United States," says the 11-page request from the Motor & Equipment Manufacturers Association.

The document says more than 40 car-industry suppliers filed for Chapter 11 bankruptcy protection in 2008.

The request signals a potentially significant broadening of the government's auto-industry bailout efforts. Congress already has provided $17.4 billion to General Motors Corp. and Chrysler LLC, and an additional $7.5 billion to the finance companies associated with the two auto makers.

The request surfaced as U.S. House Speaker Nancy Pelosi and other Democratic leaders met Wednesday with the Michigan delegation to discuss the deteriorating U.S. car industry.

On Tuesday, GM and Chrysler reported steep declines in U.S. vehicle sales in January -- GM's fell 49%; Chrysler's declined 55%. The sales reports caused alarm in Washington, where officials in President Obama's administration are awaiting "viability" reports from GM and Chrysler by Feb. 1.

"I think there definitely is a growing sense of urgency" in Congress, said an aide to a Democratic auto-industry ally. "With so much focus on the [economic] stimulus and all of these other issues, there hasn't been as much focus on [the car industry] as there was perhaps last year. But the news from yesterday, headlines today, is starting to refocus people," the aide said.

A spokesman for Ms. Pelosi declined to comment.

The suppliers are seeking $7 billion in federal funds to create a "quick pay program" to funnel money to auto makers so they can pay suppliers within 10 days of receiving parts, instead of the 45 days or more they typically take to pay.

The group also seeks $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.

Ann Wilson, spokeswoman for the car-parts association, had no comment.

A failure of a parts supplier could cause trouble at car-assembly plants across the country since many parts arrive just hours before they are needed on the assembly line.

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