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Send help quick, say US parts-makers
Government guarantees sought to fund parts already delivered to the Big Three
17 Feb 2009
By IAN PORTER
THE US automotive industry has made a chorus of appeals for financial help only a day before General Motors and Chrysler are required to plead their case to congress for aid.
The US parts industry has asked the US Treasury for $US18.5 billion ($A28 billion) in aid to carry them through what is developing into the worst industry downturn since the 1930s.
The Big Three car-makers are required to lodge proof that they can be viable if their receive assistance from the government. GM and Chrysler are seeking big loans to tide them over while Ford is not seeking loans at this stage, but is keeping its options open.
The US parts industry is asking for $US8 billion ($A12.4b) in loan guarantees so banks will lend to suppliers and know the loans will be repaid either by the supplier or by the Government under the guarantee.
In addition, the Motor and Equipment Manufacturers Association (MEMA) is seeking $US10.5 billion ($A16.27b) in supply guarantees to underpin payments from GM, Chrysler and Ford for parts already delivered but not paid for.
Of that, $US7 billion ($A10.85b) would be used to fast-track payments from GM and Chrysler in particular, so suppliers could be paid in 10 days, rather than 45.
The association represents more than 400 manufacturers that together supply 65 per cent of the parts used by North American vehicle assemblers. The business is worth more than $US300 billion ($A464b) a year.
Left: Bob McKenna, president and CEO of the Motor and Equipment Manufacturers Association.
MEMA CEO Bob McKenna said the dramatic downward spiral that the supplier community witnessed in the past few months necessitated immediate action from the Treasury Department.
“We are not seeking blanket protection from natural consolidation, but we need temporary relief to sustain the very foundation of the domestic auto industry and a critical sector of the nation’s economy,” he said.
MEMA members employ 4.5 million people and constitute the US’s largest manufacturing sector and the largest employer in seven states.
President Barack Obama has scrapped a proposal for a single person, or “car czar”, to head the industry’s recovery program, instead nominating a task force drawn from government departments.
Instead of a single person running the car industry rescue, president Obama has installed treasury secretary Timothy Geithner as the joint head of a new panel alongside White House economic advisor Lawrence Summers.
“There is no car czar,” a senior administration official told Automotive News in the US.
It is not clear when the president will unveil his plan for the industry.
GM and Chrysler received $US13.4 billion ($A20.76b) in emergency funding towards the end of the Bush presidency.
The two companies are due to submit their survival plans to the Treasury Department later today.
GM is expected to reveal plans to strip a further $US1 billion ($A1.5b) out of its annual operating costs by closing more plants and/or changing work practices.
Apart from the United Auto Workers union, pressure is also mounting on GM bondholders, who are owed billions of dollars but who are expected to make some repayment concessions to help GM survive.
Some members of congress are expected to take a tough line when the president’s plan comes to a vote.
Thaddeus McCotter (Republican, Michigan) said congress expected commitments from bondholders to allow GM to pay off a big proportion of its debt with new shares. In the past 12 months, GM shares have dropped from more than $US26 ($A40.30) to $US2.50 ($A3.87b) earlier this week.
“People had better put their best foot forward because these plans will be the basis for funds going forward,” Mr McCotter said.
A source close to the GM stakeholder negotiations told Automotive News the company was likely to reveal how many factories would be closed, but not which ones.
That would help the UAW win the support of its members for the plan without alienating workers at plants which are nominated for closure.
The source was quoted as saying the negotiations were a good opportunity for GM to pursue its True North program, introduced during the 2007 contract negotiations.
True North was designed to achieve the industry’s most efficient methods for assembling vehicles and making parts.
Under the 2007 contract, GM won agreement for lower wages to be paid to newly hired workers and the outsourcing of non-production workers such as forklift drivers.
The source said the UAW could help GM achieve $US1 billion ($A1.55b) in cost reduction without further wage cuts just by agreeing to changes in work rules.
Examples would be the reduction of job classifications from 15 in some plants to just two, mechanical and electrical. In addition, break times for workers could be reduced, the source said.
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