Struggling Auto Parts Suppliers Prepare to Seek Federal Aid

By Kendra Marr
Washington Post Staff Writer
Tuesday, January 27, 2009

Bruised by plummeting car sales and production cuts, automotive parts suppliers are gearing up to lobby for federal aid in the coming weeks.

Industry members have been discussing several options with the Treasury Department and lawmakers, weighing whether to seek funds from the financial rescue package, the stimulus plan or other sources, according to Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association.

Suppliers hope to present a request by March 1 to avert a string of bankruptcies in their sector, said Wilson, who yesterday met with more than a dozen chief executives and chief financial officers to discuss their options.

"We're working hard with the congressional delegation folks to see what is possible," she said.

The avenue most favored by suppliers is for the government to loan automakers additional funds so they can pay back the suppliers faster, said Neil de Koker, president of the Original Equipment Suppliers Association.

Automakers and suppliers typically rely on a trade credit system, in which suppliers provide parts to the automakers under an agreement that they'll be paid later. Suppliers then put those billings, or receivables, up as collateral for working capital loans.

When General Motors and Chrysler said last year that they were in danger of bankruptcy if they didn't receive government loans, many suppliers had trouble using those receivables as collateral with banks. And the situation hasn't improved.

Detroit's automakers currently owe suppliers about $13 billion to $15 billion a month for parts delivered in the previous 45 days. The delay gives automakers time to sell vehicles and use the proceeds to pay back their debts.

Suppliers, which are in desperate need of fast cash, want that lag reduced from 45 days to 10 days.

A second option would be to create federal backing for 80 percent of that monthly billing, or more than $10 billion in aid, to strengthen suppliers' standing for bank loans.

The auto industry has already used the Treasury Department's Troubled Asset Relief Program a number of times. Auto loan giant GMAC recently received $6 billion, and Chrysler Financial was granted $1.5 billion in funds. Last month, the Bush administration threw GM and Chrysler a $17.4 billion lifeline.

Yet this has done little to aid the struggling supply sector, which has been hit hard by the worst sales numbers in 16 years. So many vehicles remain unsold that many factories closed over the holidays in late December and January.

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