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post #1 of 1 (permalink) Old 06-17-2009, 03:00 PM Thread Starter

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Post Feds: Auto suppliers need no aid

Even as two more high-profile auto suppliers face the possibility of bankruptcy this month amid signs the industry’s woes are spreading, the U.S. Treasury believes the supply chain is stable enough that more federal aid is not needed immediately.

In a consolation that offers little hope for now, the U.S. auto task force said it will step in if the supply chain unravels and vehicle assembly plants are forced to close due to parts shortages, said Neil De Koker, president of the Original Equipment Suppliers Association, which requested the aid.

The setback came as more cash-strapped auto parts makers show signs of collapsing amid a sharp decline in North America car and truck output.

Novi-based Cooper-Standard Automotive missed a key interest payment this week, and bankrupt Metaldyne Corp. said Tuesday it would seek court approval to sell much of its business to a private equity firm.

Also Tuesday, American Axle & Manufacturing Inc., a key GM supplier, sought a court order to force a steel supplier to resume deliveries to keep the whole supply chain from breaking.

About 20 suppliers have already filed for bankruptcy this year and the number is expected to increase over the next 30 days.

Major Metro Detroit companies are succumbing, with Visteon Corp. in Chapter 11, and Lear Corp. and Cooper-Standard in danger of filing.

Auto suppliers are being battered on multiple fronts: tight credit markets, a slump in light vehicle production and rising commodity prices.

The auto task force met twice last week with two trade associations for suppliers, who sought another $10 billion in aid.

De Koker, who met with the task force, was told the government’s role was not to prevent bankruptcy, but to let market forces play out and to provide financing as needed to avoid plant closures from parts shortages.

“I’m disappointed,” De Koker said, “but the door is not closed.”

“If things get disorderly and assembly lines shut down due to lack of parts, (the task force) would be open to get into it again,” he said.

Steven Rattner, the top adviser to the auto task force, told The Detroit News on Monday that the government’s priority is the stabilization of General Motors Corp. and Chrysler Group LLC and ensuring they had an adequate supply of parts.

Lawrence Summers, chief White House economic adviser and co-chairman of the task force, said the government can’t save all auto suppliers.

“We’re monitoring the situation closely, and we certainly would be very focused on making sure that a situation where problems in the supply chain prevented the production of automobiles … do not develop,” Summers told The News. “It can’t be the objective of government policy to assure the health of all individual companies.”

The test could come in the next 30 days as suppliers struggle for financing to ramp up production to supply Chrysler, which could restart many vehicle assembly plants at the end of the month. Chrysler stopped making vehicles April 30 when it filed for bankruptcy, which means its suppliers are receiving payment for April shipments now, but will be without payments for July or August.

GM has rolling plant shutdowns this summer that also will play havoc with suppliers and drastically cut their volumes for the year. All automakers have cut output in the face of dismal auto sales.

OESA initially sought aid for suppliers on Feb. 13, and the government responded on March 19 by making $5 billion available to guarantee receivables for suppliers to bankrupt Chrysler and GM. The program also allowed for speedier payment from the traditional 45 days. Without the guarantees, suppliers would have been deemed unsecured creditors and likely recover about 20 cents on the dollar for their parts.

The program is managed by GM and Chrysler, and applies only to their major U.S. suppliers.

Only about 50 companies sought the aid through Chrysler before the automaker stopped participating when it filed for bankruptcy and was able to pay suppliers directly.

GM, which filed for bankruptcy a month after Chrysler, had about 320 companies use the program, said supplier analyst Jim Gillette of CMS Worldwide in Grand Rapids.

Many suppliers have not been eligible; others, like ArvinMeritor Inc., chose not to take the aid. ArvinMeritor Chairman Chip McClure said there was no need to use government aid as both automakers made their payments in full and on time.

Metaldyne Chairman Thomas Amato said if the supplier had been able to get government loans directly, rather than through the automakers, it would have been easier to prepare for bankruptcy or perhaps avoid filing altogether.

Metaldyne said Tuesday it has signed an agreement to sell some powertrain component plants to Belgian-based RHJ International. The sale still must be approved by the court. The business units involved include two of Metaldyne’s four Michigan plants — in Warren and Litchfield.

De Koker said surveys show half of the industry’s suppliers are distressed.

Among those on the bubble: Cooper-Standard has 30 days to make the interest payment it missed Monday. Standard & Poor’s Rating Services said Tuesday the company could default and file Chapter 11.

Those who have already filed for bankruptcy have been able to get able to get financing to keep operating under court protection from a customer or lender, De Koker said.

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