WASHINGTON -- The Obama administration's effort to aid struggling auto suppliers is focused on a program to provide guarantees for billions of dollars in money owed to parts makers -- a move that could provide them with badly needed cash.
A number of major suppliers are on the brink of bankruptcy in the face of dramatically lower auto production, and the so-called "credit insurance" program, would enable them to borrow from banks based on what they are owed from automakers.
The government would guarantee the payments if the automaker went bankrupt and could not pay the suppliers' bills.
Meanwhile, General Motors Corp. confirmed Wednesday the task force advising President Barack Obama on what role the government should play in shoring up the U.S. automakers will visit Detroit this week.
GM spokesman Greg Martin said the 25-member team reviewing GM's plan was returning to Detroit "to gather additional information and to continue their due diligence."
"We continue to support the efforts of the task force as it reviews GM's viability plans and works to address the urgent issues facing the auto industry," Martin said.
The automakers face a critical March 31 deadline to show the government they have won concessions from the United Auto Workers and debtholders.
Obama's auto task force plans to make some initial statements on the restructuring of GM and Chrysler LLC next week, ahead of the deadline, but doesn't plan to demand repayment of the $17.4 billion already loaned, an administration official confirmed Wednesday. The administration isn't expected to act next week on a request for another $21.6 billion in aid sought by GM and Chrysler, but to set some criteria for additional aid, congressional aides said.
Credit insurance considered
Top Obama administration auto aides Steven Rattner and Ron Bloom told Michigan members of Congress that the credit insurance program is under consideration, said Rep. Sander Levin, D-Royal Oak.
In a request to the Treasury Department last month, the Motor & Equipment Manufacturers Association sought a guarantee of up to $10.5 billion -- and asked the government to guarantee 80 percent of the payments owed to parts makers.
The credit insurance program would allow suppliers to "again be able to use receivables as loan collateral with traditional lenders, to gain liquidity, and to fund their working capital needs," according to the suppliers' Feb. 13 submission to the Treasury Department.
Banks are extremely reluctant to loan to suppliers, due to the uncertain futures of GM and Chrysler. Chrysler warned it could be forced to file for bankruptcy protection by the end of the month without additional government aid.
One advantage to the credit insurance program is that the government would have to pay money to the suppliers only if one of the automakers' filed for bankruptcy protection.
While task force advisers have strongly signaled that supplier aid is on the way, "they also made it pretty clear that the federal government can't be asked to bail out every industry and every company that's in trouble," said U.S. Rep. Candice Miller, R-Harrison Township.
Task force representatives told the Congressional Auto Caucus this week that it wants to concentrate assistance to those suppliers that are most critical to Detroit's Big Three auto operations.
Bondholders offer obstacle
Under the terms of GM's $13.4 billion in government loans, the automaker must reduce its $27 billion in unsecured debt by two-thirds. But it hasn't reached common ground with its debtholders, and experts say completing a bond exchange would take weeks. That makes it all but impossible for the automaker to meet the March 31 deadline.
The main obstacle seems to be winning agreement from bondholders to accept a steep reduction in the face value of the bonds. But GM's bonds are currently trading around 15 or 16 cents on the dollar. An ad-hoc committee of GM's bondholders has defended their efforts, saying they had presented a "framework for constructing a successful debt-to-equity exchange."
They said the plan provides the best chance "of completing an out-of-court restructuring by securing a high level of acceptance among a diverse group of GM bondholders -- from mutual funds to pension funds to retail bondholders."
Obama autos adviser Rattner criticized the bondholders' position this week in media interviews and in meetings with members of Congress.
"Obviously, Mr. Rattner is negotiating publicly to put as much pressure on the bondholders as he can," said Pete Hastings, a senior vice president and bond expert at Morgan Keegan, a Memphis-based investment firm. Hastings said the Obama administration's praise for unions and tough line on bondholders isn't surprising.
"Unions helped the president get into office," said Hastings, who said he thinks it's unfair for bondholders to be asked to take as little as 33 cents for every dollar of debt they hold, while the UAW may have to swap only half its promised retiree health payments for equity.
Hastings said he does not think it's possible to unravel the issue before the March 31 deadline. "These issues are so complex that to impose an artificial deadline is probably a mistake," he said.