Struggling Auto Parts Suppliers Seek Federal Assistance

Last summer’s Cash for Clunkers program left many auto dealers with few new cars and trucks to sell. In fact, many popular models sold out completely before the program ended. Chrysler Group was especially hard hit as they had not yet ramped up production after completely shutting down production as they underwent restructuring bankruptcy.

Now, as domestic automakers rush to replenish their depleted inventories, automotive parts suppliers are feeling the financial squeeze. Private lenders are hesitant to provide the vital working capital many suppliers desperately need and so, like the automakers they supply, they have appealed to the federal government.

One auto parts trade group representative, appearing before the Senate Banking, Housing and Urban Affairs subcommittee on Economic Policy last Thursday, said that auto parts suppliers are in dire need of federal assistance.

Speaking on behalf of the Original Equipment Suppliers Association, Dave Andrea testified that members of the organization need an immediate infusion of money to fund operations, restructuring and consolidation of the industry. He also emphasized the need to create funding programs that support long-term technological innovation.

At least 20 domestic automotive parts suppliers have filed for bankruptcy protection this year, and that number does not include an unknown number of smaller parts suppliers, foreign-based suppliers and those that have simply shut down operations without filing for bankruptcy.

Andrea went on to testify that this is an especially critical time for parts suppliers and the automotive industry as a whole as it ramps up production to meet an estimated increased demand of 2 million autos in 2010.

In prepared remarks before the Senate subcommittee, Andrea said, “Only through continued coordinated action by industry, the financial community and the government will a future potential crisis be prevented.”

The trade group had requested approximately $10 billion in federal aid earlier this year. The funds would have been used to guarantee bank loans but was rejected by President Obama’s auto task force which oversaw the bailout of Chrysler and GM.

Andrea also encouraged committee members to pass legislation for supporting advanced vehicle technologies and Small Business Administration loans. If passed, Senate resolution 1617 (the IMPACT Act) and House resolution 3246 (the Advanced Vehicle Technology Act), would help struggling auto parts suppliers. The proposed SBA loans include finding for product design and tooling that would also help the industry get back on its feet.

Some parts suppliers currently participate in General Motors’ and Chrysler’s $5 billion federal aid package which allows them pay a fee for receiving expedited payment for already delivered parts.

According to Bob McKenna, president and CEO of the Motor and Equipment Manufacturers Association, “The supplier industry remains at a crossroads. It will require the conscious efforts of the industry, lending institutions, and federal and state governments to provide a stable environment in which the industry can restructure.”

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