The U.S. Treasury Department announced today that it would (ASSP). The funds will come from the Troubled Asset Relief Program (TARP), and while the news may seem positive for suppliers, the amount is still well below the amount requested just last month, leaving room for speculation that the move is just a temporary fix until the fates of and are ultimately decided.
"The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead," said Treasury Secretary Timothy Geithner in a statement.
According to the terms of the ASSP, money isn't just given directly to auto suppliers. Under normal operating procedures, suppliers who sell parts to manufacturers generally get paid for their services 45 to 60 days after they're delivered. In the interim, suppliers can borrow against this expected income (commonly referred to as receivables) or even sell them, allowing companies to receive immediate funding for daily business operations. However, frozen credit markets and manufacturer uncertainty have completely upset this procedure, leaving suppliers with no capital to fund their operations. The ASSP addresses this problem in two ways: by offering a government-backed guarantee that all suppliers will be paid regardless of manufacturer difficulties, and by offering to buy supplier receivables -- at a "modest discount" -- if requested.
"The program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need," said Geithner.
The program also depends on manufacturer participation for suppliers to receive benefits, as it's actually run through the automakers themselves. Suppliers who work with participating manufacturers are eligible for all the program benefits provided they meet specific requirements and pay a small participation fee.
"Chrysler supported the supplier loan request from the beginning," said Chrysler LLC senior vice president Scott Garberding in a statement. "We will work tirelessly around the clock to get this program up and running."
GM also issued a statement in support of the program, saying the company "appreciates the Treasury and President's Task Force on Autos taking quick action that will improve suppliers ability to access much needed liquidity during these very difficult economic times."
Many analysts don't see the Treasury's plan as an adequate solution, citing that $5 billion dollars effectively amounts to what manufacturers owe suppliers for the current billing cycle, leading some to interpret the plan as little more than a two-month supplier lifeline. The figure falls well short of the $18.5 billion dollars the industry said it needed, and it still relies on a certain amount of liquidity returning to frozen credit markets. Never the less, suppliers will eagerly take whatever offerings they can get.
"This program comes at a very critical time and will help suppliers as they struggle to continue operations," said Neil De Koker, president of the Original Equipment Suppliers Association. "We are very optimistic that this will provide many companies with the relief they need."
Motor and Equipment Manufacturers Association President Bob McKenna had similar praise for the plan, calling it "a tremendous step toward stabilizing the supply base, which will benefit the domestic automotive manufacturing industry."