Auto Parts Guys Need a Bailout, too

February 18th, 2009 | Sources: Wall Street Journal

Subjects: ,

Now that the Big O’s nixed the idea of a car czar and tasked Tim Geithner and Larry Summers to deal with the Big 3 who are asking for boatloads more money as we speak, let’s hope those economic titans understand the entire auto parts industry is about to go pfffft unless it gets bailed out, too. 

endoftheroadThe parts suppliers requested federal aid 10 days ago. $25.5 billion was the opening bid made by the Motor & Equipment Manufacturers Association, a trade group representing 400 companies in the sector.

It’s probably just coincidence that the amount is nearly identical to the handouts already received by GM, Chrysler and their flailing finance divisions…so far.

“Without immediate assistance to suppliers, the country will face massive job losses and the eventual breakdown of the entire automotive sector in the United States,” according to an 11-page request from the Association that was obtained by the Wall Street Journal.

Last week GM and Chrysler reported breathtaking declines in domestic vehicle sales for January: GM dropped 49% and Chrysler was off 55%.

In 2008, 40 auto parts suppliers filed for bankruptcy protection. That number is likely to be surpassed this year almost no matter what.

The suppliers propose that $7 billion be used to fund a “quick pay program” allowing the beleaguered auto makers to pay suppliers 10 days after receipt of goods. That’s substantially less than the 45 days or more that has become their norm.

They also want $10.5 billion to guarantee receivables and $8 billion in federal loans.

Failure of key parts suppliers could cripple the industry faster than a rabbit on skates because the Big 3 use just-in-time supplier management systems meaning they have essentially no inventory on hand to feed the assembly line.


 

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