The Treasury Department on Wednesday finalized its program to offer up to $5 billion in short-term financing to parts makers who directly supply General Motors Corp. and Chrysler LLC; the same day fifteen members of the Obama administration's auto task force visited Detroit to meet with executives at GM.
Under the supplier aid program, GM will receive $2 billion initially and Chrysler $1.5 billion, with the ability to tap more if demand is strong. The automakers will run the program and approve suppliers to participate. The carmakers must contribute an amount equal to 5 percent of the government's loans.
Within a week, suppliers could get cash payments, as opposed to the typical 47 days after shipment, as well as credit insurance at a slightly higher cost.
"The U.S. Treasury Department is pleased that both GM and Chrysler have moved quickly to launch supplier support programs," Treasury spokeswoman Jenni Engebretson said.
But the conditions of the aid mean many needy companies won't get help, said Jim Gillette, director of financial services for CSM Worldwide in Grand Rapids. The money is only available to companies that supply directly to Chrysler or GM in the U.S., with parts made in this country.
"I'm not sure it's going to save anybody. The immediate situation is so dire," Gillette said, adding many firms on the edge are farther down the supply chain, supplying other suppliers.
But, if the aid helps suppliers survive until there is an increase in orders, the industry as a whole benefits, Gillette said.
Suppliers applauded the announcement, which also should help bolster confidence in GM and Chrysler. The two automakers are operating with $17.4 billion in federal loans and need additional aid to avert bankruptcy.
"It is absolutely the right thing to do for suppliers," said Lin Cummins, a spokeswoman for ArvinMeritor Inc., which expects to participate.
With 90 percent of its business coming from GM and Chrysler, American Axle & Manufacturing is a perfect candidate, but spokesman David Tworek said no decision has been made on pursuing aid.
GM and Chrysler both praised the program.
GM has about 400 eligible companies and spokesman Dan Flores said the goal is to get the program going right away.
About 600 Chrysler suppliers qualify. "This would not have been possible without the endorsement of our first lien bank group," said Scott Garberding, Chrysler's head of procurement.
Meanwhile, the task force contingent will be in Detroit through the end of the week, then return next week, according to an Obama administration official. GM is racing to complete a revamped restructuring by the end of May.
The task force team is being led by Harry J. Wilson from the Treasury Department, and includes experts from Boston Consulting Group and investment bank Rothschild Inc.