US car parts bail-out

It is a measure of the zillions being hurled at the credit crisis that a $5bn bail-out seems quaint. But the Treasury’s plan announced on Thursday to help auto parts makers is not just small relative to other government handouts. It also underestimates the size of the problem.

The Obama administration almost seems happily resigned to watch the auto industry shrink. Indeed, in its release, the Treasury says “substantial restructuring” is necessary, in spite of committing to “stand behind” automakers and their suppliers. How else should parts makers interpret a plan that is just a quarter the size of the $18bn they requested from the government last month? The bail-out money is to be used to buy receivables for goods that suppliers sold to automakers after March 19, 2009. Not a bad idea. It normally takes about 50 days for a supplier to be paid – a long wait in an industry where many companies are hanging on by a shoestring.

And besides, parts makers are increasingly reluctant to ship their wares to failing car manufacturers at all. But to put it in perspective, a war chest of $5bn is equivalent to only a third of outstanding receivables owed by the big three to suppliers at the end of December.

Another gag is that “decisions about which suppliers and which receivables will receive protection will be made by the participating auto companies”. That too, makes sense – why support suppliers that carmakers do not really need? The trouble is, 500 suppliers produce 80 per cent of all parts by value, not to mention another 4,500 companies, often two or three stages removed from the payment chain. Many of these will not make it. Not only is taxpayer money unlikely to find them, but as annualised car sales in the US plummets towards 10m – a quarter-century low – there are simply too many suppliers, full stop.

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