Toyota Joins American Rivals, Urges Aid to U.S. Parts Makers
Toyota vehicles at a dealership in Colorado. The automaker says it is concerned about the health of about 100 of its suppliers.
(By David Zalubowski -- Associated Press)
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Thursday, March 12, 2009
The American auto industry picked up a new ally yesterday in its attempt to win government loans: Toyota warned President Obama's auto task force that the parts suppliers it shares with its Detroit rivals are running dangerously low on cash.
"The biggest challenge that we face is really on the supplier side of the business," said Jim Lentz, president of Toyota's U.S. sales.
In recent weeks, General Motors, Chrysler, lawmakers and suppliers have all alerted the task force that struggling suppliers could trigger a bottom-up collapse of the industry. Because suppliers are paid 45 to 60 days after they deliver parts, those companies are just beginning to feel the pain of the industry's massive production slowdown in December and January. While automakers pay suppliers an average of $8.4 billion each month, March payments will be $2.4 billion, according to the Motor & Equipment Manufacturers Association.
In his 35-minute meeting with Treasury advisers Steven Rattner and Ron Bloom, Lentz stressed the interdependence of domestic and foreign automakers. About half of Toyota's auto parts suppliers sell to rival manufacturers.
"This is high on our radar screen, and it should be high on their radar screen," he told reporters after the meeting.
Of its 500 suppliers, Toyota is worried about the financial viability of about 100 companies, with 20 or 30 in critical condition. The company is working on backup plans should one of them fall into bankruptcy. Avoiding any production disruption is key. If a supplier of a unique Toyota product collapses, it could take up to a month to find a suitable replacement, Lentz said.
Lentz said he didn't give the task force any suggestions about how it might aid the supply base.
But last month the Motor & Equipment Manufacturers Association proposed three government actions: One, give the automakers cash to pay suppliers quicker. Two, provide government backing for the delayed payments promised to parts makers so they can put these so-called receivables up as loan collateral. Three, guarantee commercial loans or lines of credit for suppliers with commercial banks.
Over the past few weeks the task force has been meeting with various industry players in Washington and Detroit. Toyota specifically requested yesterday's meeting, saying the company routinely tries to make the rounds when a new administration comes into power.
"We need to be viewed in this administration as problem solvers," Lentz said.
Toyota has not escaped this economic slump. The Japanese automaker ramped up production significantly during the economic boom and now finds itself with excess capacity as sales have fallen. It said it expects to report the first operating loss in the company's history for the fiscal year ending March 31.
GM and Chrysler say they will run out of money at the end of the month without additional federal aid.
The autos task force has spent the past few weeks gathering information about the automakers' plight and spent Monday in Detroit. White House press secretary Robert Gibbs said yesterday Obama has not been "presented with specific plans yet" on task force's review of the auto industry.
