Auto Suppliers Latest To Seek Federal Bailout

Auto parts suppliers, following the lead of General Motors and Chrysler, are preparing to ask for up to $18.5 billion in federal aid. The move by parts makers, who are in talks with the Treasury Department, is another sign of deep troubles across the auto industry.

One industry official says hundreds of suppliers could go bankrupt without government assistance.

When most people think of the U.S. auto industry, they think of GM, Ford and Chrysler. But most of the parts that go into a Detroit-made vehicle — everything from bucket seats to steering columns — come from several thousand supply companies, which in turn employ hundreds of thousands of people.

With vehicle sales at staggering lows, many suppliers are gasping for air.

"The supplier community has been just very scared, very worried because they have the same problems that GM and Chrysler have," Neil De Koker, head of the Original Equipment Suppliers Association, said in December.

In a phone interview Thursday with NPR, De Koker said suppliers need the federal money to stay alive and that without it, hundreds could go under.

Michael Robinet of CSM, an auto forecasting firm in Grand Rapids, Mich., says: "When you don't build vehicles, you don't build parts. You don't make parts, you don't get paid. And so certainly, a lot of these suppliers are really running on empty."

Vehicle sales are falling so low that soon suppliers won't have enough income to pay their bills, he says.

"A steel company might have four or five furnaces that are very expensive to take up and very expensive to take down," Robinet says. "They are most efficient when they're running and they're running seven days a week. ... While that furnace is down, you've got employees that either you have to lay off or find something else to do. You're paying taxes on that facility. You still have to service your debt."

So, earlier this week, the Motor and Equipment Manufacturers Association submitted what it described as "a discussion document" to the government. It calls for $10.5 billion to guarantee payments for parts from companies like GM and Chrysler and another $8 billion in federal loans.

The association says that without help, the auto industry could suffer a "breakdown."

Treasury did not respond to requests for comment, but Robinet says the risks to the nation's auto business are real. He says that the loss of a few big, critical suppliers could cripple carmakers because they wouldn't be able to find other sources to continue production.

Even if the suppliers get federal money, analysts say, the parts business must consolidate and become smaller.

"The industry needs a very significant reorganization," says John Casesa, a longtime auto analyst. He says that if the federal government does provide money, it should be to buy time so some suppliers can wind down their businesses.

That way it would protect the automakers and make sure stronger supply companies aren't swept away in a sudden collapse.

"It will still, I think, result in the loss of hundreds of companies and be a very painful reorganization, there will be a lot of jobs lost, but it will be a more controlled process," Casesa says.

It's not clear how the Treasury Department will respond to the suppliers' request for aid.

The government has already loaned billions to GM and Chrysler. And Chrysler says it needs at least $3 billion more.

De Koker sounded optimistic Thursday, describing a first meeting with Treasury this week as "excellent."

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: