WASHINGTON, D.C. – Editor’s Note: Following our Executive Interview yesterday with Bob McKenna, president and CEO of the Motor & Equipment Manufacturers Association (MEMA), the association has issued an update to the news reports about a possible financial aid package being developed by the supplier industry in conjunction with the U.S. Treasury Department. Details about an 11-page document presented to the Treasury Department was reportedly leaked to several news outlets, which published reports on a possible $25.5 billion aid package for suppliers. MEMA’s statement regarding the agreement is below.

As a result of the ongoing credit crisis and resulting reductions in automobile production, the Motor & Equipment Manufacturers Association (MEMA) and Original Equipment Suppliers Association (OESA) are exploring options to address the immediate cash needs and longer term viability of the motor vehicle parts supplier industry. The associations have been in active communication with the U.S. Department of the Treasury, members of Congress and the Obama administration to address the financial urgency faced by suppliers, but state that no formal request has been submitted to Treasury.

“We have had constructive conversations with Treasury and elected officials in Washington, but no official request has been submitted at this time,” said Bob McKenna, president and CEO of MEMA. “Suppliers now face unprecedented challenges that have created a crisis in our industry with consequences for the nation’s economy as a whole.”

McKenna noted that the supplier industry, which represents the largest manufacturing sector in the United States, cannot access credit from traditional lenders to fund normal operating expenditures. Without immediate credit availability, an onslaught of supplier company bankruptcies is inevitable in the coming weeks and months, which would have a devastating long-term effect on the U.S. economy, ultimately costing more money and significantly weakening the country’s manufacturing base.

For more than a decade, the parts manufacturing industry has experienced significant consolidation and will continue to do so. According to OESA, 20,000 companies supplied automakers in 1990; today, that number is less than 5,000, primarily due to mergers, acquisitions and companies exiting the industry. However, without access to traditional credit, the attrition that has been occurring at a rapid and healthy pace cannot continue.

Considering the interwoven relationships between parts manufacturers and carmakers, as well as the impact of these organizations on their communities, supplier bankruptcies will be disruptive to every automaker worldwide and costly to the already fragile U.S. economy.

MEMA and OESA have presented national leaders with three options which could be individually or collectively implemented:

• Provide funds for vehicle manufacturers that have received previous funding through the Troubled Asset Relief Program (TARP) to institute an immediate, quicker pay program for their suppliers.
• Guarantee the receivables of suppliers of Chrysler, Ford and General Motors. This option will enable suppliers to use receivables once again as collateral for working capital loans from traditional banking sources.
• Provide suppliers with direct access to TARP funds.

In addition, MEMA and OESA state that the financial crisis, coupled with a continued decline in vehicle sales, necessitates the administration’s appointment of a car czar.

“These options are being evaluated and discussed actively with Treasury and congressional representatives. Because of the urgency, we believe all options – including these – should be fully explored, and we will continue to work with our nation’s leaders on these important issues,” said Neil De Koker, OESA president and CEO. “Action is needed because it is impossible to separate the financial health of suppliers from that of vehicle manufacturers. The failure of one or more key suppliers – large or small – can shut down entire supply chains and result in the closing of multiple vehicle assembly plants, directly affecting the future viability of domestic and foreign manufacturers.”