WASHINGTON, D.C. – The U.S. Department of the Treasury announced Thursday the Auto Supplier Support Program, which will provide the automotive supplier industry with up to $5 billion in financing to continue shipping parts, pay their employees and continue their operations. 
The program will provide suppliers with access to government-backed protection that money owed to them for the products they ship will be paid no matter what happens to the recipient car company. Participating suppliers will also be able to sell their receivables into the program at a modest discount. This will provide suppliers with desperately needed funding to operate their businesses and help unlock credit more broadly in the supplier industry. In addition, the program will be run through American auto companies that agree to participate in the program. Suppliers to those companies that agree to maintain qualifying commercial terms will have the opportunity to request this government backed protection. If granted, the supplier will pay a small fee for the right to participate in the program.
"The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period of restructuring the lies ahead," said Treasury Secretary Geithner. "The program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need."
The Motor & Equipment Manufacturers Association (MEMA) has been instrumental in recent weeks in educating the U.S. Treasury Dept. on the need for support for the supplier industry, outlining the industry’s impact on the overall U.S. economy as well as the interdependent nature of the supplier/automaker relationship. In February, MEMA and its affiliate, the Original Equipment Suppliers Association (OESA) submitted a formal request to the U.S. Department of the Treasury seeking financial assistance of up to $25.5 billion specifically for motor vehicle parts suppliers.
Reacting to the U.S. Department of Treasury announcement of the creation of the Auto Supplier Support Program, MEMA President Bob McKenna stated, “This is a tremendous step toward stabilizing the supply base, which will benefit the domestic automotive manufacturing industry.”
Neil De Koker, president of the Original Equipment Suppliers Association, also praised the Administration’s actions. “This program comes at a very critical time and will help suppliers as they struggle to continue operations,” De Koker stated. “We are very optimistic that this will provide many companies with the relief they need.”
Both McKenna and De Koker emphasized the need for continued dialogue with the Treasury Department to ensure smooth implementation of the program and allow for any necessary follow-up.
While suppliers today are breathing a collective sigh of relief, they must also take the time to prepare themselves for the challenges ahead, says Mike Hanley, partner at Ernst & Young. Hanley cautions that suppliers that want to take advantage of this financial assistance should make sure they are well-prepared to handle the process, in terms of both the time and staffing that are involved.
"It is clear that the government is taking very much to heart the idea of protecting the taxpayers, as it’s taxpayer money that is going to be funneling to the automotive companies, and in doing so, the restrictions and the compliance requirements that are embedded in the terms of the contracts under which the suppliers, or vehicle manufacturers, will be receiving the money are fairly onerous," Hanley said.
Hanley spoke about this issue at the Automotive Aftermarket Suppliers Association (AASA) 2009 Vision conference held earlier this week in Chicago.
"My message to the group was ‘Be careful that you don’t find yourself short staffed to be able to comply and really meet the requirements.’ Companies are finding that the government is asking for a fair amount of information — information that they may not normally have readily available or might not normally supply in an environment where it could become public information. My message was to understand what the reporting requirements will be so that they can 1) adequately staff and have the right skill set to meet those requirements and 2) are comfortable that they can actually get and report the information, which could become public."
Hanley recommends that suppliers give themselves ample time to review the agreements. "The problem is, in the crisis of trying to get cash to keep your business running, you don’t always have the opportunity to really digest and analyze and comprehend the requirements of the agreement," Hanley said. "Get your team assembled quickly, whether its legal or financial, to review all the requirements so that you understand everything before you actually sign up and receive the money."
A full fact sheet on the program can be accessed by clicking here.
