US auto industry suppliers are asking for US$25.5bn in federal government aid as falling sales and production cuts push more towards the brink of bankruptcy.
Suppliers have been pressing their case with the US Treasury in recent weeks in the wake of the nearly $22bn in aid already granted to General Motors, Chrysler and their finance arms, Dow Jones reported on Thursday.
The 11-page request, representing 400 suppliers, was submitted to the Treasury this week by the Motor and Equipment Manufacturers Association (MEMA), which declined to comment to the news agency.
“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,” a copy of the document cited by Dow Jones Newswires said.
Suppliers account for more than three-quarters of auto sector employment in the US, according to a Chicago Federal Reserve study, with staffing estimated at around 600,000 across the industry.
The suppliers want $8bn in direct access to federal loans and $7bn to create a “quick pay programme” in which auto makers could pay suppliers within 10 days of receiving product instead of the traditional 45 to 55 days, the report said.
A survey of suppliers by the Original Equipment Suppliers Association (OESA) last month said average accounts receivable widened to 51 days in January.
Dow Jones said US suppliers are also seeking $10.5bn to guarantee receivables of suppliers whose customers have received federal loans, including GM and Chrysler.
A guarantee would allow for a pool of federal funds to provide a backstop for commercial lending losses on loans to suppliers.
“Many automakers’ plants closed in January so suppliers were not getting paid,” Morningstar auto analyst David Whiston told the news agency. “Now that production is resuming, the suppliers need to buy inventory to make parts but they don’t have the cash to do it nor can they factor their receivables due to the credit crunch. They need the government to back their receivables and give them cash to buy inventory.”
US light vehicle sales fell to an annualised 9.57m in January, and some OESA members have warned they could fall as low as 7m if the recession persists, though most industry estimates are around 10m, the report noted, adding that OESA members are working at 60% utilisation rates, according to the January survey.
“More than 40 major suppliers filed for Chapter 11 [US bankruptcy protection] restructuring in 2008, and industry surveys indicate that approximately one third of all suppliers are in imminent financial distress, with another one third indicating that they will be in distress during the first quarter of 2009,” according to the request suppliers submitted to the treasury.
“Without immediate assistance to suppliers, the country will be faced with faltering vehicle manufacturers, massive job losses and the eventual breakdown of this country’s largest manufacturing sector.”
A major bankruptcy by a supplier could force the closure of automotive assembly plants across the country since many parts arrive at assembly plants just hours before they are needed on the assembly line, Dow Jones said.
Such companies as American Axle & Manufacturing Holdings, ArvinMeritor (as referred to above), Lear and Visteon have taken major financial hits as auto makers cut production in the wake of slumping sales both in the US and around the world.
Most of those production cuts were made with little warning, intensifying the financial pressure as suppliers scramble to cut workers and stop lines, Dow Jones added.