The U.S. Department of the Treasury said Wednesday that General Motors Corp. (GM) and Chrysler LLC have launched auto supplier support programs backed by up to $5 billion in U.S. government funds.
The programs will guarantee receivables owed to the auto parts suppliers for any good shipped after March 19. Suppliers interested in participating in the support program should contact GM and Chrysler, the Treasury Department said.
Suppliers of GM and Chrysler will have accounts receivable guaranteed by the government for a 2% fee, or paid immediately for a 3% charge. Parts suppliers usually receive payments 45 to 60 days after shipment.
The U.S. Treasury Department is pleased that both GM and Chrysler have moved quickly to launch Supplier Support programs, Treasury spokesperson Jenni Engebretsen said in a statement. These efforts, backed by U.S. Treasury resources, will help stabilize the auto supply base and restore credit flows in a critical sector that employs more than 500,000 American workers across the country.
GM will get $2 billion under the Treasury programs, which guarantee payments owed to parts suppliers, a spokesman for the automaker said today. Chrysler said in a statement that it will receive a $1.5 billion under the program.
Both companies are required to make a payment valued at 5% of their allocation into the program. GM and Chrysler could access the remaining $1.5 billion in the program if they need more supplier aid.
The U.S. automotive industry has been pushed to the verge of collapse due to numerous adverse markets, economic and competitive forces.
The auto supplier support programs are intended to avoid supplier shutdowns as GM and Chrysler operate with $17.4 billion in government funding and face the possibility of filing for bankruptcy protection.
The government initially made $5 billion available for any U.S. automaker that wanted to participate in the auto supplier support programs, which were announced last month. Ford Motor Co. (F) declined to participate in the programs, saying it had enough funding to pay its suppliers.
Shares of major auto parts makers climbed on the news. Shares of American Axle & Manufacturing Holdings Inc. (AXL) are currently trading at $1.49, up 0.09 or 6.43%, while those of ArvinMeritor Inc (ARM) are currently trading at $0.90, up 11 cents or 13.91%. Shares of Lear Corp. (LEA) are currently trading at $0.93, up 3 cents or 3.33%. TRW Automotive Holdings Corp. (TRW) shares are currently trading at $5.83, up 52 cents or 9.79%.
On the other hand, GM shares are currently trading at $1.90, down 10 cents or 5%.
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