Auto Parts Suppliers In Trouble

Compared to service sector businesses, manufacturing creates more jobs both directly and indirectly. It also works the other way. When car makers go out of business, the repercussions are felt far and wide. The first of what will surely be many more such stories to come.

From the Washington Post:

Struggling Auto Parts Suppliers Prepare to Seek Federal Aid

Bruised by plummeting car sales and production cuts, automotive parts suppliers are gearing up to lobby for federal aid the coming weeks.

Industry members have been discussing several options with the Treasury Department and lawmakers, weighing whether to seek funds from the financial rescue package, the stimulus plan or other sources, according to Ann Wilson, senior vice president of government affairs for the Motor & Equipment Manufacturers Association.

Suppliers hope to present a request by March 1 to avert a string of bankruptcies in their sector, said Wilson, who yesterday met with more than a dozen chief executives and chief financial officers to discuss their options.

“We’re working hard with the congressional delegation folks to see what is possible,” she said.
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The avenue most favored by suppliers is for the government to loan automakers additional funds so they can pay back the suppliers faster, said Neil de Koker, president of the Original Equipment Suppliers Association.

Automakers and suppliers typically rely on a trade credit system, in which suppliers provide parts to the automakers under an agreement that they’ll be paid later. Suppliers then put those billings, or receivables, up as collateral for working capital loans.

When General Motors and Chrysler said last year that they were in danger of bankruptcy if they didn’t receive government loans, many suppliers had trouble using those receivables as collateral with banks. And the situation hasn’t improved.

Read the rest of the story here.