Auto Suppliers Seek Help in Wake of Chrysler, GM Woes
Thursday, May 14, 2009
Small auto parts companies are appealing for additional federal aid, arguing that financial troubles at Chrysler and General Motors continue to weaken the industry's supply chain.
Work is disappearing for companies that make carburetors, tire rubber and other parts for carmakers. Chrysler's bankruptcy filing kicked off a shutdown of a majority of its plants until it completes its restructuring. GM has announced extended summer closings, as long as nine weeks, at many of its facilities in North America to realign its production with lower customer demand.
Chrysler's Chapter 11 filing has left unpaid bills for millions of dollars in parts. And suppliers fear that a GM bankruptcy would exacerbate their cash troubles.
The Treasury Department created a $5 billion program to aid the automakers' biggest suppliers, the so-called tier 1 companies that assemble full modules like car doors. But smaller firms, tier 2 and tier 3 suppliers that make the screws and hinges for those doors, say the money isn't trickling down. Typically, the automaker will pay the tier 1 supplier, who then subcontracts work to smaller companies.
"Smaller suppliers in financial distress are completely dependent upon their first tier customer to provide financial assistance down through the supply chain," said Wes Smith, president of E&E Manufacturing, testifying before the House Small Business Committee hearing yesterday.
Unable to access the Treasury program, many have "no choice but to close their facilities," Smith said.
Committee chairwoman Rep. Nydia M. Velázquez (D-N.Y.) warned that inaction jeopardizes millions of jobs. In total, the auto parts sector employs 685,892 U.S. workers, contributing to more than 3.2 million jobs across the country, according to the Motor & Equipment Manufacturers Association.
"Strengthening and supporting small firms will be critical," Velázquez said. "Failure to do so will shrink the supplier base further, dealing a lethal blow to businesses like GM and Chrysler."
Yesterday, a number of tier 2 and tier 3 supply company executives were on Capitol Hill lobbying for aid.
Assistance could be made available by expanding Small Business Administration loan programs, they suggested.
Others urged the Obama administration to speed the allocation of a $25 billion loan program to retool plants and boost production of fuel-efficient vehicles. The Energy Department has received numerous applications, from automakers and suppliers, but has not announced any awards.
In a letter sent to lawmakers last Friday, the manufacturers association advocated expanding the Treasury's supplier assistance program to include small suppliers and others. Bank and loan restrictions prevented eligible suppliers from participating. Aftermarket suppliers that make replacement parts and U.S. manufacturers that ship parts abroad do not currently qualify.
"They've got to broaden the program and provide more capital for the program," said Ann Wilson, senior vice president of government affairs for the manufacturers group.
The group also urged Congress to pass an incentive program to encourage consumers to buy new cars and trucks.