DETROIT (April 8, 2009)—Cash-strapped auto suppliers will be able to tap only $3.5 billion in federal aid, not the $5 billion previously thought, because Ford Motor Co. won't take its allocation of the funds.
In addition, General Motors Corp. will have to pay $100 million into the supplier bailout program so its suppliers can access its share of the federal funds, amounting to $2 billion, GM purchasing chief Bo Andersson told Automotive News, a sister publication of Rubber & Plastics News, on Monday.
"The Treasury was very concerned that we would fund nonperforming suppliers. So that is why they wanted us to put in seed money first," Andersson said.
GM is required to provide a 5 percent match to the $2 billion that the U.S. Treasury Department will make available to GM suppliers, Andersson said.
This week the feds are expected to present the final rules for a $5 billion supplier bailout program that was approved last month. But the terms mean that the $5 billion available to suppliers, already short of the $18.5 billion the supplier industry had sought, will be whittled down to $3.5 billion.
GM has asked for $2 billion of the amount for its suppliers, while Chrysler has asked for $1.5 billion for its suppliers.
The remaining $1.5 billion was earmarked for suppliers to Ford, said Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit. But Ford said last month that it had enough cash for suppliers so that it did not need to participate. The association helped to broker the bailout program.
Suppliers have been awaiting the bailout funds as North American vehicle production cuts of more than 50 percent this year have slashed their revenues. The money can't come soon enough for scores of suppliers on the verge of a cash crisis, De Koker said.
The program would benefit suppliers in two ways: They can pay a 3 percent fee to get paid quicker than the normal 45 days for parts already delivered, or they can use the funds to guarantee their receivables as collateral for loans.
Either way, GM and Chrysler must select the suppliers that are eligible for the program. For that right, GM and Chrysler must provide a 5 percent match for the money being set aside for their suppliers, De Koker said. That amount would be $75 million for Chrysler's $1.5 billion share of the program.
Chrysler spokesman David Elshoff declined to comment, pending a formal announcement of the program rules by the Treasury Department.