Capital Markets

Next Up for a Bailout: Auto Suppliers

Treasury will spend $5 billion to protect the parts companies' receivables.
Stephen TaubMarch 19, 2009

The Treasury Department said it has made available up to $5 billion in financing to help stabilize automotive suppliers and restore credit flows in this key industry.

The goal is to give the suppliers the confidence they need to continue shipping parts, pay their employees, and maintain their operations, according to Treasury’s announcement.

Auto suppliers employs more than 500,000 Americans, Treasury pointed out. It noted that because of the credit crisis juxtaposed with the rapid decline in auto sales, many of the suppliers are unable to access credit and are facing growing uncertainty about the prospects for their businesses and for the auto companies that rely on the parts they ship. 

“This program will help break this cycle and provide confidence in the supplier base at an important time for the domestic auto industry,” Treasury stated.

Under the program the government is providing the suppliers with protection that they will be paid money owed to them for their shipped products no matter what happens to the recipient car company.

Suppliers will also be able to sell receivables to the government, which will get a modest discount off their face value. “This will provide suppliers with desperately needed funding to operate their businesses and help unlock credit more broadly in the supplier industry,” Treasury stated.

Suppliers to American auto companies that agree to maintain qualifying commercial terms may participate in the program by paying a small fee.