Auto Bailout Part Two - The Auto Supplier Support Program
The U.S. Treasury announced today a new program that will provide $5 billion to finance auto suppliers and hopefully unfreeze credit in the auto sector. Treasury will provide the money to participating domestic auto companies, which will in turn decide “which suppliers and which receivables” to support.
In the course of reviewing GM’s and Chrysler’s viability plans and the state of the industry, the President’s Auto Task Force determined the need for immediate action “to help stabilize the auto supply base,” which employs more than 500,000 workers across the country. Declining auto sales have left many suppliers unable to access credit. The task force concluded,
“This vicious cycle of frozen credit markets, growing supplier uncertainty, and growing auto company uncertainty has the potential to unravel the industry and short-circuit restructuring efforts at companies like GM and Chrysler.”
Eligible suppliers must be U.S. based and ship to a participating auto manufacturer. GM and Chrysler have already signed up for the program. An eligible receivable is one “created with respect to goods shipped after March 19, 2009 that is made on qualifying commercial terms between a supplier and a participating auto company.” Suppliers will have to get consent from their lenders to participate in the program and will have to pay a “modest” participation fee. Suppliers will also have the option of selling their receivables into the program for “a modest discount” in order to gain liquidity. Further details are available in the attached fact sheet.
Treasury: Auto Supplier Support Program (PDF)
