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1,579 views Apr 7, 2009

The aid package will provide guarantees for money owed to parts suppliers by the Detroit 3

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In the first major sign that the U.S. government was keen on helping out the entire domestic auto industry and not just the Detroit 3 carmakers, the U.S. Treasury approved a $5 billion aid package last month for automotive parts suppliers. The aid is to come in the form of guarantees for receivables, or money owed to suppliers for parts already delivered, however, suppliers will only be able to access $3.5 billion because Ford won't take its allocation of the funds.

Ford revealed last month that it had enough cash for suppliers and thus had no reason to participate in the latest bailout. General Motors, on the other hand, will have to pay $100 million into the supplier bailout program so its suppliers can access its share of the federal funds, amounting to $2 billion, Automotive News reports.

Supplier firms are doing it just as tough as the Detroit 3, especially with all the production cutbacks and shrunken margins brought about by years of cost reductions. North American vehicle production fell 55% for the year ending March 7th, and with more production cuts almost certain to come this year this latest announcement should offer some comfort.

To access the aid, supplier firms will have to sell their receivables to the government for a small fee as part of a practice known as factoring. Unfortunately, the $3.5 billion amount is somewhat short of the $18.5 billion requested by a contingent of supplier firms late last year.