Auto-Parts Suppliers to Seek More Government Aid

For Immediate Release:

June 11, 2009

Contact:JOSH MITCHELL

Wall Street Journal

U.S. auto-parts companies plan to ask the Obama administration for as much as $10 billion in new aid as General Motors Corp. and Chrysler LLC bankruptcies deepen the suppliers' troubles.

Trade groups will meet Wednesday with President Barack Obama's auto task force at the Treasury Department and warn that hundreds of parts companies could collapse without the aid. They are requesting that the government guarantee $8 billion to $10 billion in loans so banks will lend to the suppliers.

Both Chrysler and the White House face unexpected challenges. The U.S. Supreme Court threw the sale of Chrysler LLC to Fiat SpA into uncertainty while it decides whether to hear an appeal of the deal. Video courtesy of Fox News.

The parts companies account for more than three-quarters of auto-sector employment in the U.S., according to a Chicago Federal Reserve study, with employment of about 600,000 -- roughly five times as many workers as are expected to be employed by GM and Chrysler's domestic operations once their government-subsidized restructurings are done.

Stabilizing the supply base is critical to ensuring the long-term viability of GM and Chrysler, said Neil De Koker, president and chief executive of the Original Equipment Suppliers Association.

"We could end up having all that money go to waste because they won't be able to start up without suppliers," Mr. De Koker said, referring to the taxpayer-funded assistance. "If there's just one key part missing on a car, you can't build it."

His group, along with the Motor and Equipment Manufacturers Association, have prepared a 71-page presentation arguing that as many as 500 companies could soon face a severe cash crunch, including the possibility of liquidation. They cite several independent studies.

A Treasury Department spokeswoman said administration officials "will continue to work with the companies and monitor the auto supply base going forward." She declined to comment further.

The Treasury earlier this year put in place a $5 billion program to guarantee GM and Chrysler payments to suppliers, but supply groups said the program falls short of what they need.

Suppliers, already hurt by the auto-sales decline, are facing a deeper crisis because of bankruptcy-related production slowdowns.

Visteon Corp. and Metaldyne Corp. filed for bankruptcy protection last month. Lear Corp. and TRW Automotive Holdings Corp. are attempting to reach new agreements with their creditors by June 30.

Suppliers plan to propose expanding loan programs at the Small Business Administration and the Agriculture Department, Mr. De Koker said.

Parts suppliers have been overwhelmed by the auto-sector crisis. Above, a FormTech employee in Michigan.

The supplier groups also plan to meet with members of Congress on Thursday to press for alternatives, including legislation, if the administration declines to provide further aid.

Separately Tuesday, House Majority Leader Steny Hoyer (D., Md.) said he supports legislation that would require GM and Chrysler to honor existing franchise contracts with dealerships the car makers intend to close.

The bill, introduced by Reps. Frank Kratovil (D., Md.) and Dan Maffei (D., N.Y.), would require Chrysler and GM to abide by agreements that dictate the circumstances under which a dealership could be closed and sets requirements for payments. Rep. Hoyer said neither the White House nor the companies had offered any economic rationale for closing the dealerships.

A White House spokeswoman didn't return a request for comment. The auto makers have said they need to shrink their dealer networks to cut costs and improve the image of their brands.

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