DETROIT (May 11, 2009) — The $5 billion federal bailout program for parts suppliers that was unveiled in mid-March has been a bust — flawed and bogged down in red tape. Fortunately for suppliers, the program now may be irrelevant.
"All our paperwork has been in for weeks," said the CEO of a suburban Detroit company that makes molded parts.
The cash outlays are administered by Citibank, but Generral Motors Corp. and Chrysler L.L.C. decide which of their suppliers can participate.
After GM approved his company for the program, the CEO spent weeks trying to obtain guarantees on his receivables, including three weeks of due diligence with his lender and others.
"But Citibank does not return phone calls or e-mails," he said.
The program is designed to allow suppliers designated by GM or Chrysler to get paid early for their parts shipments or to use government guarantees of payment to borrow from their private lenders.
Another CEO, who runs a Detroit area trim supplier, faced similar problems. GM and Chrysler "say we are on the list of suppliers qualified for aid," he said. But he has yet to hear from Citibank, which he said is overwhelmed by supplier demand.
Citibank did not return calls from Automotive News.
Said GM spokesman Dan Flores: "We certainly understand there is interest in the program. We are working diligently with Treasury and Citigroup to move the program along as quickly as possible."
GM is thought to have more than 100 suppliers registered with the program as of last week.
Said Chrysler spokesman David Elshoff: "We have had more than 400 suppliers express interest in the program. We are not disclosing details about the suppliers participating in the program."
Court approves payment
Last week, Chrysler received court approval to pay suppliers for previous parts shipments as an alternative to the problematic Treasury program. GM is expected to seek similar approval if it files for Chapter 11.
Chrysler has budgeted $1.49 billion for the task. That's nearly 88 percent of the money it owed its parts suppliers when it entered bankruptcy protection April 30. Lawyers say bankruptcy courts rarely approve paying such a large portion of what suppliers are owed.
That could make Treasury's Supplier Support Program, which offers government guarantees for receivables — money owed to suppliers for parts shipped — a distant second place option for suppliers, said Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit and one of the lobbyists for the government help.
The federal program doesn't help suppliers hurt by production cuts because it pays only for parts that are shipped. Chrysler has halted all production while it is in bankruptcy, and GM has begun closing its plants for nine weeks this summer. If parts aren't being shipped, suppliers can't tap the government program.
GM and Chrysler are the only two auto makers participating in the government program. Ford Motor Co. opted out because it has enough cash to pay its suppliers for parts without government help.
When it was unveiled in mid-March by the Obama administration's auto task force, the program was touted as a cash lifeline for suppliers crippled by falling production volumes. But suppliers soon criticized it as expensive. They had to pay a 3 percent fee to get their receivables paid earlier than the typical 45 days after parts arrive at the auto maker and 2 percent to have their receivables guaranteed. That works out to annual rates over 25 percent.
Treasury's Web site says that on April 9, the department lent $3.5 billion to GM Supplier Receivables, a special purpose fund created by GM, and $1.5 billion to a similar Chrysler unit. A Treasury spokeswoman said the government has no information on how the car companies have disbursed the money or to whom. She referred all questions to GM and Chrysler.
The Congressional Oversight Panel, formed by Congress to monitor the government's $700 billion bailout of the financial and auto industries, has not looked into the operations of the Supplier Support Program, Elizabeth Warren, the head of the panel, told reporters. The program is funded through the Troubled Asset Relief Program.
"It's not going smoothly," said attorney Michael Fleming of the law firm Plunkett Cooney in suburban Detroit. His clients are submitting documents and then told to submit others. Said Fleming: "It will take time to get the bugs out."