DETROIT (April 9, 2009)—Cash-strapped auto suppliers may be able to tap the full $5 billion in U.S. aid designated for their relief, even if Ford Motor Co. doesn't take its allocation of the funds.
In an interview today, a White House spokeswoman said the funds originally designated for Ford's suppliers now will be available to General Motors Corp. and Chrysler L.L.C. suppliers if the auto makers apply and their applications meet federal guidelines. GM says it will make $2 billion of the funds available to its suppliers and Chrysler is expected to allot $1.5 billion, putting the rest up for grabs.
The spokeswoman's statement clarifies a point of confusion. Some industry officials said it was unclear whether the unclaimed Ford allocation would be made available to GM and Chrysler.
The U.S. Treasury Department launched the program today. It offers quicker payment on or a guarantee of payments due for parts shipped after March 19. To participate, suppliers have to apply with the automakers.
The actual amount available through GM and Chrysler will depend on how much each auto maker seeks to tap. The companies have to pay a 5 percent fee to the U.S. Treasury for the funds. The money is to be disbursed to the approved suppliers by Citibank.
For example, General Motors will have to pay $100 million into the supplier bailout program, or 5 percent of the $2 billion that GM currently plans to tap for its suppliers, GM purchasing chief Bo Andersson told Automotive News on Monday. For Chrysler's $1.5 billion share of the program, the amount would be $75 million.
"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.
Ford said last month that it had enough cash for suppliers, so it did not need to participate in the program.
The supplier industry, through various associations, had sought $18.5 billion in aid.
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 program would benefit parts makers in two ways: Suppliers 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, then provide a 5 percent match for the money being set aside for their suppliers, said Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit.