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For auto supplers, a stopgap starts the bailout
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While a lot of public attention has focused on the severe problems of the automotive Big Three, with two of them, General Motors Corp. (GM) and Chrysler LLC, getting federal government bailouts, their suppliers are also in big trouble, with a bailout of their own that has just begun.
Last week, the Obama Administration announced a Supplier Support Program, with an initial $5 billion in financial aid as a stopgap to prevent a wave of supplier failures while a more comprehensive program is being developed. Suppliers had previously asked for a $25.5 billion bailout.
Both the Big Three and foreign automakers can't function without a solid supplier base, and suppliers employ about 600,000 Americans, more than twice as many as those employed by the Big Three. With auto production slowed down, along with the normal delay between delivery of parts and payment, plus the credit crunch, many suppliers have been unable to secure the credit needed to stay in business.
The initial supplier bailout provides some breathing room, but it comes with a few catches. The money goes through GM and Chrysler, giving them life and death power over affected suppliers. Ford Motor Company is also eligible to participate, but has decided not to do so because it is not currently having problems paying suppliers. In addition, bailout money can only apply to parts made in U.S. factories to prevent taxpayer funds from being used to subsidize sending jobs overseas.
Longer term plans for auto industry survival will be forthcoming, and some suppliers will go under, regardless of the actions taken. But for any turnaround to take place, suppliers must be on board, and the Obama Administration has made it clear that it is well aware of this crucial fact.
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