March 20, 2009 at 8:07 am

Aid to suppliers signals support of auto industry

$5B assures firms to get paid for parts

WASHINGTON -- The Treasury Department's decision Thursday to provide up to $5 billion in financing for cash-strapped auto suppliers signals that the Obama administration has only begun what will be an expensive effort to restructure the domestic auto industry.

The deepening federal involvement comes days before the president's auto task force will offer its first public assessment of the viability of General Motors Corp. and Chrysler LLC.

Under the plan unveiled Thursday, the Treasury Department will guarantee $5 billion in payments that automakers owe to parts suppliers -- a move that suggests the government isn't likely to force either automaker into bankruptcy anytime soon.

"They're sending a clear message, I think, that they know GM and Chrysler have to survive," said U.S. Rep. Thad McCotter, R-Livonia. "It would make no sense to save the suppliers and not save the carmakers."

But a member of President Barack Obama's auto task force told reporters that the White House hadn't made any decisions on additional actions, though he called the supplier aid plan "the first step of the Obama administration to help this critical industry."

The administration said the program was aimed at preventing a wholesale collapse of the U.S. auto industry.

"The vicious cycle of frozen credit markets, growing supplier uncertainty and growing auto company uncertainty has the potential to unravel the industry and short-circuit restructuring efforts at companies like GM and Chrysler," the Treasury Department said in announcing the program.

Suppliers praised the plan -- even though it fell far short of the $18.5 billion or more that they sought -- and many supplier stock prices soared.

"We are very optimistic that this will provide many companies with the relief they need," said Neil De Koker, president of the Original Equipment Suppliers Association, a trade group.

Chrysler's chief procurement officer, Scott Garberding, said the "decision by the U.S. Treasury is viewed as a vote of confidence for the U.S. auto industry and the future of our company."

U.S. Sen. Carl Levin, D-Detroit, said the announcement signals that Obama is likely to come to the aid of GM and Chrysler again.

"I think this reflects a growing awareness on the part of the administration of the importance of the auto industry to this nation's economy," he said.

That investment could get bigger.

The federal government has committed $30 billion in aid to GM and Chrysler, their financing arms and the companies' suppliers. The administration is weighing requests by GM and Chrysler for another $21.6 billion in assistance.

If the administration declined to give GM or Chrysler additional loans, it could face the possibility of providing tens of billions in debtor-in-possession financing under bankruptcy reorganization.

The administration also is considering whether to support a "cash for clunkers" program to stimulate auto sales and a request to make it easier for auto finance companies to qualify for government funds to underwrite dealer inventories.

That's on top of $25 billion in low-cost auto retooling loans. The Energy Department is expected to start making those loans as early as next month.

Administration won't provide indefinite aid

Suppliers have warned since January that they faced a cash crunch this month that threatened the survival of the entire auto industry.

More than 500,000 people work for 5,000 suppliers nationwide; suppliers are the largest manufacturing employers in Michigan, Ohio, Indiana, Kentucky, Missouri, South Carolina and Tennessee.

The administration sent a strong signal, though, that it expects more parts suppliers to fail, and has emphasized it will not provide assistance indefinitely to the industry.

The nation's auto suppliers have shed nearly 200,000 jobs in the last two years and more than 40 major suppliers filed for bankruptcy last year.

"This administration recognizes that the failure of certain suppliers is a natural, albeit painful, part of the business cycle and that we cannot and should not stand in the way of the substantial restructuring and capacity reduction that needs to take place in the auto supply industry," the Treasury Department said.

Some were unhappy that the program only applies to Tier 1 suppliers, who sell parts directly to automakers. Rep. Candice Miller, R-Harrison Township, said "it leaves out the thousands of smaller suppliers, many of which are located in southeast Michigan."

And Sens. Bob Corker, R-Tenn., and Judd Gregg, R-N.H., blasted the aid program because GM and Chrysler haven't won concessions from debt holders and the United Auto Workers -- two actions required under the terms of their federal loans. They called it "a violation of trust."

"With so many sectors of our economy hurting, I seriously question why auto suppliers deserve billions of dollars," Gregg said.

But Patrick Dreisig, co-chair of Butzel Long's global automotive industry group, called the decision "long overdue for an auto supplier industry that's been teetering on the brink of insolvency."

He said the terms were similar to commercial terms in a normal credit market. GM and Chrysler, Dreisig said, would be able to use the program to determine "which suppliers are going to survive and which aren't."

Ford Motor Co., which hasn't sought any bailout funds, won't draw on the supplier aid program.

Reach David Shepardson at (202) 662-8735.

How aid works

Big auto parts suppliers are in line for critically needed assistance from a $5 billion aid plan announced Thursday by U.S. Treasury officials. Here are some of the major suppliers and where they stand:

Delphi Corp.

2008 revenue: $18.1 billion
Closing stock price: 7 cents, up 3 cents
2008 net income: $3 billion
GM's largest supplier is still struggling to emerge from bankruptcy.

Lear Corp.

2008 revenue: $13.6 billion
Closing stock price: $1.33, up 61 cents
2008 net loss: $690 million
Deal with creditors announced this week may not be enough to avert bankruptcy.

Dana Corp.

2008 revenue: $8.1 billion
Closing stock price: 47 cents, down 4 cents
2008 net income: $18 million
Announced this week a $256 million fourth-quarter loss and said it was planning additional layoffs after 5,000 cut last year.

TRW Automotive

2008 revenue: $15 billion
Closing stock price: $4.38, up $1.16
2008 net loss: $779 million
Analysts said this week the company was in danger of defaulting on debt agreements.

Visteon Corp.

2008 revenue: $9.5 billion
Closing stock price: 29 cents, up 13 cents
2008 net loss: $663 million
Averted bankruptcy by making a $16 million bond payment last week, but still expects "going concern" notice from auditors.

American Axle & Manufacturing

2008 revenue: $2.1 billion
Closing stock price: $1.56, up 1 cent
2008 net loss: $1.2 billion
Says 84 percent of sales are to GM and Chrysler; got "going concern" notice from auditors last week.

ArvinMeritor Inc.

2008 revenue: $7.2 billion
Closing stock price: $1, up 5 cents
2008 net loss: $101 million
Rating agency Moody's cut rating of company's debt this week.
Detroit News research; stock prices are as of Thursday's close