US launches $5bn motor industry aid
Thursday 19 March 2009
The US Treasury Department today pledged to provide up to $5 billion in financing support to auto parts suppliers to help them survive a massive downturn in US car sales.
The Treasury said the program, run through key participating US auto companies, will provide government guarantees to suppliers to ensure they will receive payment for products shipped, no matter what happens to the recipient car manufacturer.
Participating suppliers will also be able to sell receivables into the government program at a modest discount, giving them access to desperately needed liquidity and helping to unlock credit more broadly in the supplier industry, the Treasury said. Suppliers will pay a "small fee" to participate in the program, it said.
Supplier shares jumped on Wall Street after the announcement
with the Dow Jones automobiles and parts index (.DJUSAP) up more than 4 per cent.
Lear Corp shares were up 75 per cent after earlier doubling in price, while American Axle (AXL.N) surged 49 per cent.
The program was aimed at providing stability and certainty to key auto suppliers as a Treasury task force considers restructuring options for the auto industry.
"The Supplier Support Program will stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead," Treasury Secretary Timothy Geithner said in a statement, adding that suppliers will get access to liquidity to run their businesses, while
domestic auto companies will keep reliable parts supplies.
But the program's funding amount was less than one fifth of the up to $25.5 billion in government aid initially requested by the auto parts firms.
Industry executives and bankers have warned that hundreds of component manufacturers have been pushed to the verge of failure by a cash crunch triggered by the plunge in auto production that started at the end of 2008.
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