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U.S. government to support auto suppliers up to $5 billion

The Obama administration, acknowledging the need to stabilize “the vast network of businesses” supplying parts to the American auto industry—the one the administration has publicly committed to stand behind—yesterday announced an Auto Supplier Support Program to provide up to $5 billion in financing aimed at giving suppliers the confidence needed to continue shipping parts to OEMs. So how does it work?

Rob Neilley

March 19, 2009

2 Min Read
U.S. government to support auto suppliers up to $5 billion

The program’s jumping-off point is a domestic OEM signing up for the program. The Treasury Dept.’s initial announcement said GM and Chrysler have already done so; Ford was not mentioned. The OEM requests an allocation from Treasury to provide financial backing and works with a third-party servicer to create a receivables purchase program. The OEM must make an unspecified financial commitment, as well.

Which suppliers? Which receivables?

Any U.S.-based supplier shipping to a participating OEM using qualifying commercial terms may participate; however, the decision as to which ones will, and which receivables will be protected, are to be made by the OEMs. A supplier should contact the procurement officer at the OEM after determining from its lenders whether or not it can sell its receivables. Once the OEM approves, the supplier, for “a modest fee,” will be able to sell receivables into the program for “a modest discount.” That, says Treasury, will provide immediate liquidity.

Eligible receivables are limited to those for goods shipped after March 19, 2009, according to Treasury Dept. documents. As the support is not for receivables due for shipments made prior to the program’s announcement, it is in tune with the administration’s objective of enabling suppliers to ship now, and with confidence. Suppliers can have government-backed protection that they will be paid monies owed for goods shipped no matter what happens to the OEM.

One area of concern for many readers of PlasticsToday.com has to be that the program is aimed solely at Tier One suppliers, those dealing directly with, and holding receivables from, domestic automakers. Tier Two and component suppliers further up the supply chain do not seem to be included in this support program. It may be that they will have to hope their Tier One clients begin to pay promptly after turning their accounts due into financial liquidity.[email protected]

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