Auto suppliers get turned down on additional bailout
Federal officials will watch, but not fund automotive supply chain
Dave Hannon -- Purchasing, 6/18/2009 10:49:59 AM
The automotive supplier industry's request for an additional $8-$10 billion in funding from the U.S. government has been turned down, but the President's Automotive Task Force says it will monitor the automotive supply chain's health and may intervene at a later point if necessary.
The Treasury Department said in a statement Tuesday that an existing $5 billion support program for auto parts suppliers was playing an important role in stabilizing the nation's auto supply base. "No changes have been made to funding, but will continue to monitor the situation," the department said.
The request for additional aid was filed by supplier industry group Motor & Equipment Manufacturers Association (MEMA) and its affiliates including the Original Equipment Suppliers Association (OESA) on behalf of the automotive supplier industry. In its filing, obtained by Purchasing.com, the OESA said its most recent survey of supplier industry health show that:
• 24% are in violation of bank loan covenants;
• An additional 24% anticipate being in covenant violation by the end of 2009;
• 54% have been approached for shorter payment terms by their sub-tier suppliers; and
• 12% do not have access to working capital to increase North American production.
But the Task Force turned down the application, saying there were more immediate needs in the automotive industry, but that it was closing monitoring the supplier industry for changes. Lawrence Summers, economic advisor to President Obama and co-chairman of the Task Force, told the Detroit News that "We're monitoring the situation closely and we certainly would be very focused on making sure that a situation where problems in the supply chain prevented the production of automobiles...does not develop. It can't be the objective of government to assure the health of all individual companies."
Dave Andrea, vice president of industry analysis and economics at OESA, tells Purchasing.com that "the Task Force was clear that they need to balance the administration's well known position of not wanting to extend the government's investment and intervention any more than they need to with being engaged enough to support the largest U.S. manufacturing sector in the U.S. economy and assure a public payoff of the government's investment in GM and Chrysler."
Andrea says the Task Force's position is that the GM and Chrysler bankruptcies have been more orderly than expected with trade receivables being paid and that major suppliers who have gone into bankruptcy have either been critical enough to demand customer intervention, are at valuations that attract new investment or are not significant enough to disrupt production if they liquidate.
OESA has identified 13 major U.S. direct suppliers and two additional indirect
suppliers that have filed for bankruptcy or have had their assets foreclosed in 2009. The Detroit News reports that there are still tier one automotive suppliers in danger of filing bankruptcy including Lear Corp. and Cooper-Standard.
OESA says critical attention must be paid the supply base because a significant number of suppliers are still at risk. "The purchasing community is paying an inordinate amount of time keeping the supply base operating and that is with suppler capacity utilization at 47%," Andrea points out. "The Task Force respects our position and agreed to remain open to our input on the state of the industry such that we can identify red flags being signaled in the supply chain."
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