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Auto Suppliers Latest To Seek Federal Bailout

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Auto Suppliers Latest To Seek Federal Bailout


Auto Suppliers Latest To Seek Federal Bailout

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Auto parts suppliers are following the lead of GM and Chrysler and preparing to ask for up to $18 billion in federal aid. The companies are in talks with the Treasury Department. The move by parts makers is another sign of deep troubles in the auto industry. One industry official says hundreds of suppliers could go bankrupt without government assistance. NPR's Frank Langfitt reports.

FRANK LANGFITT: When most people think of the U.S. auto industry, they think of General Motors, 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, and those companies employ hundreds of thousands of people. With vehicle sales at staggering lows, many suppliers are gasping for air. Neil De Koker heads the Original Equipment Suppliers Association, an industry group. Here's how he described the situation back in December.

Mr. NEIL DE KOKER (Original Equipment Suppliers Association): Well, the supplier community has been just very scared, very worried, because they have the same problems that GM and Chrysler have.

LANGFITT: De Koker declined to speak for tape today, but in a phone interview he said suppliers need the federal money to stay alive, and that without it hundreds could go under. Michael Robinet works for CSM, an auto forecasting firm in Grand Rapids, Michigan. He says the economic problem is pretty straightforward.

Mr. MICHAEL ROBINET (Auto Analyst): When you don't build vehicles, you don't make parts. You don't make parts, you don't get paid. And so certainly a lot of these suppliers are really running on empty.

LANGFITT: Robinet says vehicle sales are falling so low that soon suppliers won't have enough income to pay their bills. He uses a steel maker as an example.

Mr. ROBINET: A steel company might have four or five furnaces that are very expensive to take up and very expensive to take down. 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.

LANGFITT: 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, quote, "breakdown." Treasury did not respond to requests for comment, but Robinet says the risks to the nation's auto sector are real. He says that the loss of a few big suppliers could cripple carmakers.

Mr. ROBINET: There isn't a lot of times where there's back-up supply, so there would a period of time, until the industry can find a way to replace that supplier, there will be a significant interruption of production.

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

Mr. JOHN CASESA (Auto Analyst): The industry needs very significant reorganization.

LANGFITT: John Casesa is a longtime auto analyst. He says 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.

Mr. CASESA: It will still, I think, result in the loss of hundreds of companies and, you know, it would be a very painful reorganization. It would be a lot of jobs lost. But it will be a more controlled process.

LANGFITT: It's not clear how the Treasury Department will react to the supplier's request. The government has already loaned billions to GM and Chrysler. And Chrysler says it needs at least $3 billion more. Neil De Koker, who represents suppliers, sounded optimistic. He described a first meeting with Treasury this week as excellent.

Frank Langfitt, NPR News, Washington.

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