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Re-activateThe automotive industry has seen its foundation crack, with hundreds of suppliers facing economic hardships while their customers – the automakers – likewise struggle to survive.
Just this week, two more large auto suppliers, Visteon and Asbury Automotive, said they expected "going concern" warnings in their auditors' reports, indicating they could be in danger of going out of business. And Lear, another giant auto parts supplier, struck a deal with its creditors allowing it to default on some payments, but still said it might have to file bankruptcy.
As car sales plummet, so does the demand for the thousands of components used to build each one. These suppliers don't just sell to GM and Chrysler. Should one or more of them fail, it would drain the flow of parts to other automakers building in the United States, as well. Should the supplier network start to topple like dominoes, it would have far-reaching impact.
To shore up the suppliers, the U.S. Department of the Treasury announced Thursday that it would provide up to $5 billion in financing to help keep the parts moving. While this is far less than the $18.5 billion in aid that suppliers had requested, it is a start. Many suppliers have been unable to obtain credit necessary to survive, complicating the situation for the domestic auto industry.
The Auto Supplier Support Program will be run through participating automakers, creating a new dimension to the supplier-manufacturer relationship. Enrolled suppliers will be required to pay a fee to participate.
In order for the auto industry to gain strength, the suppliers need to remain viable, and this measure should help do just that.
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