US auto parts firms welcome federal support plan

20 March 2009 18:05  [Source: ICIS news]

WASHINGTON (ICIS news)--US automotive parts manufacturers on Friday hailed a new financial rescue plan announced by the Treasury Department, saying the $5bn (€3.6bn) in support funding could save the car making sector from collapse.

“I think this is a tremendous step forward,” said Ann McCulloch, director of external affairs for the Motor & Equipment Manufacturers Association (MEMA).

“Without this help from Treasury, we were facing an immediate crisis in the supply base that would have affected auto manufacturing across the country,” she said.

MEMA represents nearly 1,000 small and medium manufacturers - including many plastics applications firms - that supply many of the engines, body panels, electronics and other parts that are incorporated into the passenger vehicles and light trucks made by the major automakers.

Those supplier firms employ nearly 700,000 workers, McCulloch said.

Many parts and components suppliers to the auto industry were on the brink of collapse, the industry said, because tight credit has made operating funds scarce, and many fear they might never be paid for parts already supplied to the troubled automakers.

In addition to its use of plastics and polymers, the auto industry and its suppliers also consume a range of chemicals.  The American Chemistry Council (ACC) estimates that each US-made light vehicle (passenger car or light truck) contains nearly $2,700 worth of chemical products or chemical processing value.

In the plan announced by the Treasury Department, parts suppliers will be protected from financial loss if money owed them by the automakers is not paid or paid in time to maintain the parts companies’ cash flows, operations and payrolls.

Parts manufacturers also may sell their receivables to Treasury at a modest discount.  The department said this feature of the rescue plan “will provide suppliers with desperately needed funding to operate their businesses and help unlock credit more broadly in the supplier industry”.

According to the industry, banks have been reluctant to issue short-term operational loans to parts manufacturers for fear those borrowers will go out of business if the major automakers go into bankruptcy or otherwise cannot pay their suppliers.

“This programme comes at a very critical time and will help suppliers as they struggle to continue operations, said Neil De Koker, president of the Original Equipment Suppliers Association (OESA), one of the four subsidiary groups of MEMA.

“We are very optimistic that this will provide many companies with the relief they need,” he said.

McCulloch said she hopes that the $5bn financial assistance plan - formally known as the Auto Supplier Support Programme - will be sufficient to put the sector back on its feet without the need for further funding.

“Now we’ll have to wait and see how Chrysler and GM fare going forward,” she said.

Chrysler and General Motors already have taken billions of dollars worth of federal relief funding in hopes of staying in business until the US economy turns around.

($1 = €0.73)

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