More Details on Supplier Industry's Formal Proposal for Financial Assistance - aftermarketNews

More Details on Supplier Industry’s Formal Proposal for Financial Assistance

In all, the three bridge suggestions, which have been recommended in combination with each other, ask for up to $25.5 billion in financial assistance from the government.

WASHINGTON, D.C. — On Feb. 13, the Motor & Equipment Manufacturers Association (MEMA) and its affiliate, the Original Equipment Suppliers Association (OESA), submitted a formal request to the U.S. Department of the Treasury, on behalf of the motor vehicle parts supplier industry, seeking financial assistance specifically for motor vehicle parts suppliers. 

The document outlined three specific “bridge” suggestions for relief. Yesterday, aftermarketNews obtained a copy of the proposal, which outlines the three recommendations in detail. In all, the three bridge suggestions, which have been recommended in combination with each other, ask for up to $25.5 billion in financial assistance from the government.

The breakdown of funds is as follows:

• Up to $10.5 billion for government guarantee of supplier receivables from GM, Ford, and Chrysler so that suppliers are able to use their receivables as loan collateral with traditional lenders. This is based on 2008 calendar year production at GM, Chrysler and Ford and an 80 percent guarantee.

• Up to $7 billion for institution of a “quick pay” receivables program to increase supplier liquidity by accelerating accounts payable payments from GM and Chrysler to their suppliers. Also based on 2008 calendar year production at GM, Chrysler and Ford, this would be a revolving credit instrument that GM and Chrysler could borrow against to fund "quick pay" to suppliers.

• Up to $8 billion for government loan guarantees for supplier companies. Cash outlays would be limited to a risk-adjusted level reserve, according to the document.

In an introductory letter making the case for the financial support, MEMA CEO Bob McKenna wrote, "The supplier industry does not suggest blanket protection to forestall change. Rather, MEMA understands that market forces will reshape the industry and dictate necessary rationalization. However, failure to take the actions above outlined, will severely cripple our country’s historically strong — and economically necessary — automobile industry."

Stating that the motor vehicle supply base is "on the cusp of a cascading economic failure," MEMA’s document noted that an estimated 1 million workers could be at risk if action is not taken. More than 130,000 supplier jobs have been lost as of June 2008 — not taking into account the extreme workforce reductions that have taken place over the past eight months. In addition, more than 40 major suppliers filed for Chapter 11 in 2008, with more suppliers having fallen into bankruptcy during the first six weeks of this year.

Highlighting the strong mutual dependency of the supply base and the vehicle manufacturing sector, the document also pointed out that approximately 70 percent of the value (as measured in dollars) of every automobile is manufactured by suppliers.

"The failure of one or more key suppliers, no matter how large or small — can shut down entire supply chains, resulting in multiple vehicle and truck assembly plant closings and resonating throughout the entire vehicle aftermarket," the document stated.

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