February 14, 2009 / 12:28 AM / 11 years ago

U.S. auto suppliers seek $18.5 billion in government aid

DETROIT (Reuters) - U.S. auto suppliers submitted a formal request to the U.S. Treasury on Friday for $18.5 billion in emergency funding to avoid a wave of bankruptcies and a deeper crisis in the auto industry.

A General Motors employee works the assembly line at the GM assembly plant in Arlington, Texas November 18, 2008. REUTERS/Jessica Rinaldi

The request, which was submitted by two industry groups, outlined three proposals for financial relief.

The proposals say the government could guarantee supplier receivables from U.S. automakers, accelerate payment terms or guarantee commercial loans to parts companies.

The formal petition was filed by the Motor & Equipment Manufacturers Association and its affiliate, the Original Equipment Suppliers Association (OESA).

The submission includes a request for $10.5 billion in guarantees for receivables and accelerated payment terms, as well as $8 billion in direct loans, OESA President Neil De Koker said.

“I have been in the industry since 1962 and I have never seen anything like this,” De Koker said of the current situation for suppliers.

“(What) we are figuring in the next two weeks to six weeks is where the real peak of the pain will be for the suppliers because of the downturn in volume in December and the virtual shutdown of the industry in January,” De Koker said.

U.S. auto suppliers, through industry groups, have been in discussions with the U.S. Treasury in recent weeks.

The requests come as General Motors Corp (GM.N) and Chrysler LLC race to meet a February 17 deadline to show U.S. officials they can be made viable after receiving $17.4 billion in aid.

Bob McKenna, president of the Motor & Equipment Manufacturers Association, which represents some 400 suppliers, warned that without government action, auto suppliers will be forced to shutter facilities or close entire operations in March and April.

“This would devastate the domestic auto industry and deepen the economic crisis,” he said in a statement.

The proposal said more than 40 major suppliers filed for Chapter 11 restructuring in 2008, with industry surveys indicating about one-third of all suppliers are in imminent financial distress.

Auto parts suppliers have come under intense pressure from tight credit conditions and from plant shutdowns by major automakers at the end of last year and the beginning of 2009.

Projections from parts suppliers show payments to the companies are on track to drop to just $2 billion to $3 billion in March because of the near total shutdown in auto production at the start of the year, according to MEMA data. Suppliers had been receiving between $8 billion and $9 billion per month.

Reporting by Poornima Gupta; Editing by Gary Hill and Andre Grenon

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