The US treasury has announced a US$5bn aid programme for struggling components suppliers, leading to speculation the federal government will give more aid to General Motors and Chrysler.
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However, the plan revealed last night provides funds only to the largest of GM’s and Chrysler’s tier one parts makers because the Obama administration believes that will shore up the most important companies in the supply chain, which in turn will aid their own critical suppliers, Dow Jones reported.
Like recent low-interest loans to the two Detroit-based firms, the so-called ‘Supplier Support Program’ will draw money from the treasury’s Troubled Asset Relief Program (TARP) bailout fund.
It will help suppliers bridge the gap between delivering parts and receiving payment, though the aid is less than the $25bn parts makers asked for.
The funds are expected to help suppliers’ cashflow. Sharp cutbacks in production reduced parts deliveries in the last months of 2008 and early 2009, so the payments suppliers have received are not as large as usual and they now lack the liquidity needed to run their businesses and buy raw materials.
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By GlobalData“Addressing this particular problem was of great urgency,” one member of president Barack Obama’s auto task force was quoted as saying.
This “clearly signals that bankruptcy is not an option for the auto makers,” noted Republican Michigan representative Thaddeus McCotter. “Why would you help the supply chain and not help the two auto makers?”
GM spokesman Dan Flores told Dow Jones the package would “help reduce the risk of vehicle production disruptions” due to troubles in the supply chain.
A number of major suppliers, including Lear and American Axle & Manufacturing have recently warned investors they are on the brink of insolvency.
