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TARP Funds to Support Auto Parts Suppliers

By Kevin Robinson in News on Mar 20, 2009 7:40PM

Photo by mmmmarshall
The Obama Administration announced late Thursday that it would offer up to $5 billion in revolving credit to guarantee payments owed to thousands of auto parts suppliers. The funding, which doesn't inject cash directly into businesses, will provide liquidity to keep an industry that supports some half a million jobs operating. Both General Motors and Chrysler will also kick in five percent, or about $250 million each.

While details were forthcoming, "the program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need," Treasury Secretary Timothy Geithner said in a statement. "This vicious cycle of frozen credit markets, growing supplier uncertainty and growing auto company uncertainty has the potential to unravel the industry and short-circuit restructuring efforts at companies like GM and Chrysler." Suppliers that take the insurance, which guarantees that they will be paid for parts regardless of what happens to auto manufacturers that order them, will pay a two percent fee to the government. For an additional one percent, they can receive a direct cash payment for orders, in lieu of waiting the typical 45 to 60 days for payments.

About 80,000 jobs in Illinois are tied to the auto industry, and some 200 parts manufacturers and suppliers are located here, including Chicago-based BorgWarner and Calumet City-based Kay Manufacturing Co.