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February 5th, 2009 (Modified on March 6th, 2009)

Auto-Parts Suppliers Request $20.5B Bailout

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You don’t have to be a market analyst to have known this request was coming any day now. According to several sources, auto-parts suppliers have made a request through the Motor & Equipment Manufacturers Association to Treasury officials for a direct loan of $10 billion. Suppliers also requested another $10.5 billion for automakers that would allow them to pay parts suppliers within 10 days instead of the traditional 45:

For the direct loans, suppliers individually will have to apply for the money. But the association wanted to give Treasury some sense of how much money will be needed for suppliers, [President of the Original Equipment Suppliers Association, Neil] De Koker said.

The $10.5 billion “fast pay” part of the request will help suppliers bridge what they typically receive for parts delivered and the shortfall caused by production cuts, De Koker said.

The Detroit 3 typically spend about $15 billion a month for parts, he said. That figure will be more akin to $5 billion to $7 billion a month in February and March, he said.

With auto sales at their lowest levels since the early 1980’s, auto-parts suppliers have felt every pain experienced by automakers.

That said, do suppliers deserve a bailout?

The government has painted themselves into a corner by providing significant funding to the Big Three. There are several industries such as parts suppliers that are dependent upon automakers. In this case, I don’t see how Washington can feed one mouth, only to deny others.

How do you see this scenario playing out?

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