The Washington, D.C.-based lobbying group for U.S. auto parts suppliers is calling for direct financial assistance for ailing parts suppliers and short-term government incentives to spur new vehicle sales to stave-off more failures and job losses in the auto parts sector.
Motor & Equipment Manufacturers Association CEO Robert McKenna sent a letter to members of congress saying the authorization of new direct financial assistance for suppliers is needed to prevent many suppliers from permanently shutting down manufacturing operations.
The recently announced extended shutdowns of nearly all of General Motors' and Chrysler LLC's operations will leave many suppliers, already on the ropes because of a 52 percent drop in vehicle production during the first quarter, with "no choice but to permanently close their facilities," McKenna said in the letter.
"Once vehicle manufacturers resume production, suppliers will be expected to purchase materials and pay operating costs and employee wages without any ready cash or immediate payments," McKenna said, whose group includes the Troy-based Original Equipment Suppliers Association.
Suppliers are typically paid by automakers 45 to 60 days after parts are delivered. GM plans to idle 13 assembly plants for up to 11 weeks and at least a portion of 23 engine, transmission and parts factories for two to eight weeks this summer. Chrysler plans to idle all of its plants in the U.S. until its bankruptcy court sale to Italian automaker Fiat Group SpA is complete. During those shutdowns, suppliers stand to collectively lose billions of dollars in revenue.
"Since most of these companies are not diversified and only provide original equipment parts and components to vehicle manufacturers, there is no other source of revenue for their operations," McKenna said, though many suppliers do, in fact, have diversified customer bases within the auto industry to automakers other than GM and Chrysler.
McKenna did not explicitly say specify the form or how much additional aid was needed.
The federal government has allocated $5 billion -- a fraction of the $18.5 billion in financial assistance lobbied for earlier this year -- to a program to guarantee receivables, or payments owed to suppliers for parts already shipped to automakers. Suppliers selected by GM and Chrysler could opt in to the program and use the guaranteed receivables as collateral for loans or sell receivables direct to the government, for a 3 percent fee, for immediate liquidity access.
But, "significant limitations restricted the reach of this program," McKenna wrote.
He took issue with the fact that it only provides relief for Tier 1 suppliers, while lower-tiered companies also face financial distress.
Chrysler suppliers were also "significantly exposed" to risk from the automaker's April 30 bankruptcy filing because the program was not fully operational when it filed, McKenna said. Bank restrictions and loan covenants also prevented many suppliers from participating.
McKenna also called for incentives to spur new vehicle sales, days after members of congress said they would support a "cash for clunkers" program that would provide $3,500 or $4,500 to consumers who replace old, gas-guzzling vehicles with new, more fuel-efficient models.
Said McKenna: "Without immediate action, communities throughout this country will needlessly lose essential manufacturing jobs and the U.S. auto industry will not have a sufficient supply base to manufacture vehicles in this country."
The Associated Press contributed to this report.