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U.S. Treasury to Provide $5 Billion in Auto Supplier Aid

By on March 23, 2009 11:59 AM
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Under terms of a new "Auto Supplier Support Program" announced today, the U.S. Treasury Department will provide up to $5 billion in funding from the current Troubled Assets Relief Program (TARP) to help automotive component suppliers weather the current market downturn. "The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period of restructuring the lies ahead, "said Treasury Secretary Geithner. "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."

Under terms of the Auto Supplier Support Program, a participating supplier would pay a small entry fee to be assured of getting paid for any components shipped, regardless of what might happen to the automaker. Eligible suppliers would also be able to sell their receivables into the program at a modest discount, allowing them to raise even more short-term capital. The Auto Supplier Support Program is to be administered by participating American auto firms. So far GM and Chrysler, both of whom have already accepted over $17 billion in TARP funding, have agreed to be part of this effort and are expected to have their programs fully operational shortly. Ford Motor Company, which has neither requested nor received any TARP monies, has yet to announce whether it plans to take advantage of this new deal.

According to terms of the program, the automakers will be responsible for determining the eligibility of their given suppliers. It's expected that many will try to meet the legal requirements, as over 40 suppliers already have filed for Chapter 11 bankruptcy and many more are teetering on the brink. These operations, which employ some 600,000 workers, reportedly have seen their 2009 manufacturer payment revenues fall by nearly two thirds compared to the last quarter of 2008.

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