Auto Suppliers Seek More Bailout Billions

By CHIP CUTTER

posted: 170 DAYS 15 HOURS AGO

filed under: Bankruptcies, Financial Crisis

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NEW YORK (June 9) - Automotive parts suppliers plan to seek an additional $8 billion to $10 billion in loan guarantees to help them weather a bleak auto sales environment and the bankruptcy court restructuring of major customers GM and Chrysler.

The Original Equipment Suppliers Association and Motor & Equipment Manufacturers Association said they plan to request the federal aid Wednesday from the U.S. Treasury Department to help provide capital to suppliers stung by the declines in the auto industry.

President Barack Obama's auto industry task force already initiated a $5 billion financing support program in April to keep parts flowing to GM and Chrysler. It also provided government guarantees for financing of parts that were already shipped to automakers but had not been paid for.

But trade association officials say more guarantees are essential for ailing parts suppliers who are facing revenue shortfalls as auto plants are idled or closed.

Neil De Koker, president and CEO of the Original Equipment Suppliers Association, said many suppliers can't request money from banks, due to the credit crunch, but have little revenue coming in to support their operations.

"A lot of suppliers are in very significant straits," he said. "There's an awful lot of suppliers who don't know if they're going to make it through the next 30 days or not."

Parts suppliers have warned that the temporary plant shutdowns by Chrysler LLC and General Motors Corp. during the U.S. automakers' Chapter 11 proceedings have thrown them into a crisis. Two suppliers have already filed for bankruptcy protection — Visteon Corp., a top parts supplier to former parent Ford Motor Co., and Metaldyne Corp.

Troy, Mich.-based Delphi, a former GM unit and the company's largest supplier, has been in bankruptcy protection since 2005 and is still struggling to emerge.

News of the latest aid request bolstered auto supplier stocks Tuesday, helping many to outperform the broader market. Southfield, Mich.-based Lear Corp. led the pack, as shares jumped 37 cents, or 30.3 percent, to close at $1.59 for the day on trading volume nearly five times the daily average.

Suppliers American Axle & Manufacturing Holdings Inc., Tenneco Inc. and Dana Holding Corp. also saw double-digit percentage increases.

David Silver, an analyst with Wall Street Strategies, said investors reacted positively to the loan request because it ensures suppliers will be paid for their work, even as automakers struggle.

"They'll be guaranteed to get the revenue that they're owed," he said.

The aid will mainly be used to help suppliers pay workers and purchase raw materials. That way, suppliers can quickly resume production once auto plants reopen, said Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association.

"The request in is recognition of what's going in the industry right now," she said, "and the need for revenue and capital to be able to start production again."

Rep. Gary Peters, D-Mich., who represents dozens of suppliers in his Detroit-area district, said many of the companies told him during a recent meeting that they were particularly vulnerable with the bankruptcies of General Motors and Chrysler.

"They do need assistance, not just the Tier 1 but the Tier 2 and Tier 3 will need that assistance," Peters said. "Particularly now that the plants are in shutdown mode and not producing vehicles. There isn't any cash flow coming to them and as things start ramping up, they're not going to have the working capital to ramp up as well."

In addition to the Treasury request, trade officials plan to meet with lawmakers on Capitol Hill Thursday to talk with the auto caucuses in both the House of Representatives and the Senate.

There, trade groups will stress the important of parts suppliers in the larger effort to turnaround the auto industry, De Koker said.

"You can't build a car with the steering wheel missing," he said.

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Associated Press Writer Ken Thomas in Washington, D.C. contributed to this report.

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2009-06-09 18:58:19