Auto Parts Suppliers Get Federal Help

The Obama administration will use $5 billion in federal bailout funds to help out struggling auto parts suppliers. The swift decline in auto sales has pushed many parts makers to the brink.

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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block.

More help is on the way. That's the message from the Obama administration to the auto industry. The Treasury Department announced today that it'll provide up to $5 billion to prevent the collapse of the nation's auto parts suppliers. In recent weeks, major parts makers have been edging toward bankruptcy, threatening the entire industry.

NPR's Frank Langfitt has been in Detroit this week visiting some of those suppliers, and Frank, tell us more about these companies and the role they play in the industry.

FRANK LANGFITT: Well, you know what, Melissa, most of the parts in a car: radio, the gears, the steering column, they aren't made by GM, or Chrysler or Ford, they're actually made by these supply companies. There are about 4,000 of them. Many of them now are really in terrible shape. There's been this collapse in auto sales. That means orders are way down for the companies, and frankly, a lot of them are just running out of money.

Now Treasury Department was worried that if these suppliers collapse, it could cost a lot of jobs. A lot of people don't realize this, but the scale of the industry is huge. These suppliers have 500, 600,000 workers. It's a lot more than the Detroit Three and failure, you know, could just have a really big impact on unemployment. They were also worried that if critical suppliers went under, that could choke the automakers of parts and shut them down, too, having this sort of cascading effect.

BLOCK: And that's led to this announcement today from Treasury. What exactly are they planning to do to prop up these suppliers?

LANGFITT: Well, they've got to get them cash. I mean, this is the key problem. And the government is putting up money from the Troubled Asset Relief Program, TARP, to guarantee that suppliers get paid for their parts. So that even if GM or Chrysler run short, the suppliers can still get the money they need to keep the lines running and to make payroll.

The government's going to charge a small fee for this guarantee. And they say they expect to get paid back, that they're not just pumping money into these companies. And they see this primarily as sort of a, you know, an emergency stop gap measure.

BLOCK: And what are you hearing from the auto parts suppliers that you've been visiting this week?

LANGFITT: Well, the initial reaction is relief that at least something's getting done. Frankly, they've been screaming for help for weeks, and they have been meeting with the White House task force on autos. And small suppliers here each week were just handing in the keys. They were running out of money and people were just giving up. But the details of exactly of how the aid's going to work is not quite clear. And so some companies are wondering, you know, am I going to get help?

I was just on the phone not too long ago with a supplier who makes rough parts for transmission gears, and they sell up the supply chain to other companies that then tool those gears and send them to the carmakers. So this company was wondering, well, you know, we're really important to this industry, but how are, you know, they weren't quite sure how they were going to get their share of the money.

BLOCK: Yeah, and $5 billion, you mentioned there are about 4,000 suppliers, is that enough money to go around all of them?

LANGFITT: Not at all - and that's the rub here. The industry was already really bloated before the recession - at least 20 percent too many companies, and everybody knew that it needed to shrink. Now because of the recession it needs to shrink dramatically. And what Treasury wants to make sure is to be clear that this is going to be an orderly contraction.

The government wants to prevent this from becoming like this quick chaotic collapse that would cause a lot of unnecessary damage. And Treasury says that, you know, the automakers, General Motors and Chrysler, it'll actually be up to them to decide which suppliers get these guarantees. So, in a way, the Detroit automakers, which have enough troubles of their own, they're kind of going to be deciding, you know, which of these suppliers will be able to survive and which may not. Sort of, no matter what happens, everybody here expects that a lot more suppliers will probably go under in the future.

BLOCK: Okay, NPR's Frank Langfitt reporting this week from Detroit. Frank, thanks so much.

LANGFITT: You're welcome, Melissa.

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