The U.S. Treasury on March 19 announced financing aid of up to $5 billion for auto supply firms hurt by a credit squeeze and the collapse in vehicle sales. The program is aimed at U.S.-based suppliers to auto manufacturers General Motors and Chrysler, which have received a separate aid package worth some $25 billion to help stave off their collapse.
The new effort "will help stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead," said Treasury Secretary Timothy Geithner in announcing the 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."
The program will provide suppliers with access to government-backed guarantees that money owed to them for the products they ship will be paid no matter what happens to the automakers that ordered the products. Suppliers will also be able to sell their receivables into the program at a modest discount, giving them access to needed liquidity.
The aid package came after warnings that dozens of automotive suppliers could lose their credit lines or end up in default because of problems with auto manufacturers, notably General Motors. Suppliers generally receive payment about 45 to 60 days after shipping their products. In a normal credit environment, suppliers can either sell or borrow against those so-called "receivables" to pay their workers and fund their operations. However, credit lines have been tightened due to the uncertainty about the ability of the auto companies to honor their obligations, adding to the pressure on suppliers.
GM welcomed the new Treasury program as a key step to keep America's auto industry running. "This action can help reduce the risk of vehicle production disruptions that would occur if auto suppliers were unable to produce due to lack of access to working capital liquidity," the company said.
U.S. auto sales extended their downward spiral in February, falling 41% from a year ago to the lowest rate since December 1981 amid a deepening economic crisis.
GM posted the sharpest year-on-year decline among major automakers, with sales down 53% to 127,296 vehicles in February and its market share down to 18.2% from 22.7% a year earlier.
Copyright Agence France-Presse, 2009