Yesterday, the Treasury Department announced an auto supplier support program that is intended "to help stabilize the auto supply base and restore credit flows in a critical sector of the American economy" by addressing concerns that "banks are unwilling to extend credit" against auto supplier receivables due from auto manufacturers "due to the uncertainty about the ability of the auto companies to honor their obligations." Both GM and Chrysler had requested that the government implement a supplier financing program in their most recent restructuring plans submitted in February. The program is not intended to prevent supplier failures but the enable "the substantial restructuring and capacity reduction that needs to take place in the auto supply industry ... to take place in an orderly fashion, without threatening the stability of the largest automobile companies."
The following description is taken from Treasury's Fact Sheet for the new program. The Supplier Support Program is open to any domestic auto company, and both GM and Chrysler have indicated their intention to participate and will be required to "make a financial commitment in connection with the support received from the Treasury." Participating auto companies "will request an allocation from the U.S. Treasury to provide government-backing and then work with a third-party servicer to establish a receivables purchase program." Any "U.S.-based supplier that ships to a participating auto manufacturer on qualifying commercial terms" is eligible to participate, but "[d]ecisions about which suppliers and which receivables will receive protection will be made by the participating auto companies." Participating suppliers will sell eligible receivables (any receivable "created with respect to goods shipped after March 19, 2009 that is made on qualifying commercial terms between a supplier and a participating auto company") into the program at a "modest discount."