By Kendra Marr
Washington Post Staff Writer
Tuesday, June 9, 2009
Auto parts suppliers are planning to ask the Obama administration for an additional $8 billion to $10 billion in federal aid.
The Motor and Equipment Manufacturers Association is preparing to present its proposal for several aid programs tomorrow during a meeting with the president's autos task force. On Thursday, the association hopes to meet with members of Congress.
"It is necessary we address the supplier needs in the short term and that we have longer-term goals to have a viable and stable supply base," said Ann Wilson, the association's senior vice president of government affairs.
The suppliers' latest push for aid comes as members of the administration search for additional ways to revitalize the nation's auto supply base, which employs 686,000 workers. The administration is exploring several options, but has not settled on any particular financing vehicle, said sources familiar with the matter.
In March, trade groups helped negotiate a $5 billion government package to back payments by General Motors and Chrysler to suppliers. But a survey by these groups found that only about half of the automakers' major suppliers were eligible or elected to participate.
Smaller companies, which act as subcontractors to the automakers' direct suppliers, have not seen that money trickle down. Many are struggling financially as automakers curb production in response to slow sales. Last month, Metaldyne and Visteon, Ford's largest supplier, filed for Chapter 11 bankruptcy protection. This year at least 13 direct suppliers have filed for bankruptcy protection or had their assets foreclosed, according to the Original Equipment Suppliers Association. That's not counting those that have simply liquidated.
"The need for action is immediate," the suppliers say in their latest aid request.
The trade groups recommend four programs to strengthen companies.
They suggest speeding up aid programs, such as an Energy Department fund for retooling, and expanding existing loan guarantee programs to assist more suppliers. The groups have set their sights on broadening Small Business Administration and Agriculture Department rural development loans.
"Given that these programs are in operation, slight modifications to the programs could quickly open the door for supplier assistance," the proposal says.
In addition, the groups want the government to develop incentives to spur commercial lending in the auto supplier sector. And they suggest that the government provide more debtor-in-possession financing to GM and Chrysler so that the companies could "inject immediate liquidity into the supply base."
Longer term, the suppliers would like to see a dedicated program within the Small Business Administration or an industrial development bank aimed at aiding manufacturers during periods of economic distress.
"Only through continued coordinated action by industry, the financial community and government will a future, potential crisis be prevented," the proposal says.
Auto suppliers make up the largest manufacturing sector in eight states: Indiana, Kentucky, Michigan, Missouri, Ohio, Oklahoma, South Carolina and Tennessee. Many have seen their revenue decline sharply in recent months. Industrywide, third-quarter payments from automakers to their suppliers are projected to be about $6 billion a month, according to the manufacturers association. A year ago these payments were $10 billion to $14 billion.
Before the economic downturn Ron Overton, president of Overton Industries, an Indiana tool and die company, would get one flier a month advertising a supplier equipment auction. Recently he has been receiving about eight fliers a week from shuttered companies across the Midwest.
Overton said he sees the need to get out of the auto manufacturing, which makes up more than half of his business.
"Our business is still very slow," he said. "We're looking to diversify more. We're looking at defense and aerospace."
But suppliers say it has been difficult to tap lines of credit to even keep operations running. They charge that banks have either reduced their funds or have been unwilling to renew their current lines of credit.
As more and more small tool and die companies fold, Overton said he is worried about the future.
"At some point production will ramp up again," he said. "But will there be enough of the supply chain left to support a turnaround? Or will it be an excuse to drive more business overseas?"