DETROIT (Dec. 12, 2008) — Chrysler LLC's suppliers have begun asking for cash on delivery for auto parts, the Associated Press reported late Thursday, citing an interview with executives.
Vice Chairman Tom LaSorda and Chief Financial Officer Ron Kolka said suppliers and other vendors have demanded COD, but the company is "fending them off," the AP said.
When suppliers demand COD from a troubled company such as Chrysler, it can cause chaos in the company's financial structure.
Chrysler's cash will drop to $2.5 billion by Dec. 31, company officials have said. That's the bare minimum the auto maker needs to make payroll and pay suppliers, according to the report. Chrysler pays its suppliers $7 billion every 45 days, Kolka told the AP.
"January, first quarter is a big problem for us," Kolka said.
Chrysler's depleted cash situation underscores the financial crisis faced by the Detroit 3 as a federal government loan bailout failed late Thursday evening. Without an immediate infusion of cash, both Chrysler and General Motors Corp. have said they could run out of funds to operate their businesses by the end of the year.
Chrysler has scheduled a meeting Friday with its suppliers, but LaSorda told the Associated Press the company will not ask for concessions. Suppliers know that concessions, either price reductions or longer payment terms, are likely, and the company wants to work with them to reach the numbers, LaSorda and Kolka told the AP.
Kolka acknowledged "quite a few" Chrysler suppliers now are asking for cash.
"The biggest risk we have is our suppliers coming and saying 'I want to be paid on delivery,'" Kolka told the AP. "We can't do that. The math just doesn't work."
Chrysler and GM now must develop a plan to operate after Thursday night's events in Congress.
"Chrysler is obviously disappointed in what transpired in the Senate and will continue to pursue a workable solution to help ensure the future viability of the company," the company said in a statement released late Thursday.
Chrysler is owned 80.1 percent by private equity fund Cerberus Capital Management LP – and 19.9 percent by its previous controlling shareholder, Daimler AG of Germany.