Reported in today’s Detroit Free Press, GM chairman Rick Wagoner warned on Tuesday that the financial stability of U.S. auto suppliers was “getting more precarious” and that bankruptcy could lead to the demise of the automakers.
Having requested $25.5 billion in aid, the supplier industry continues to struggle with mounting financial stress and faces a wave of bankruptcies if help doesn’t come before the end of the month. In an interview with the Detroit Free Press on Monday, Steven Rattner, the lead adviser to the automotive task force, said the problem facing auto suppliers is becoming increasingly urgent and that it’s still the government’s plan to meet the March 31 deadlines set by the loan deals with GM and Chrysler.
As part of a proactive approach to find a solution outside of bankruptcy, Michigan House Speaker Andy Dillon has developed a proposal that would offer a new state tax credit to auto suppliers that consolidate their operations, as reported by Crain’s Detroit Business. Dillon estimates that the plan could provide some $250 to $500 million in incentives to suppliers.
Crain’s Detroit Business also recently reported that GM has revealed plans to its suppliers for a payment-assurance program that it hopes the federal task force will approve. The payment-assurance program being considered would involve government backed credit insurance for auto manufacturer receivables. The hope is that receivables backed by credit insurance could be used by suppliers to support bank loans to finance their working capital needs.
As the end of end of the month approaches and the government mulls over whether automakers are making sufficient progress on their turnaround plans, it will be interesting to see how parts companies, automakers, banks and the government plan to consolidate the problems within the supply base.