By on March 30, 2009

Ronald Reagan once said that the scariest words in the English language are “we’re from the government and we’re here to help.” For troubled auto suppliers though, there are scarier things than government assistance. Specifically, government assistance administered by GM and Chrysler. Automotive News [sub] reports that the the newest automaking branches of the federal government will be in charge of allocating the $5 billion in supplier aid, and that they’ll be using the money to settle old scores. According to AN‘s breezy prose, GM and Chrysler may “pass over” suppliers that have sought to protect themselves from OEM bankruptcies by demanding payment in fewer than 45 days or arguing that insolvency worries allow them to break contracts with the automakers. After all, the government didn’t think the supplier rescue money would go to the most in-need firms, did it?

In order to qualify for the program’s credit or loan guarantees, all suppliers must meet “qualifying commercial terms” with GM and Chrysler. And the gruesome twosome insist that contracts which were renegotiated to keep suppliers afloat do not qualify on these terms. In other words, if a supplier was struggling enough to renegotiate with an OEM they almost certainly won’t receive any government assistance. Analysts note that “hundreds” of suppliers have asked GM and Chrysler for renegotiation, and that they will either return to the original contracts (which brought them to these dismal circumstances) or simply do without the loans. With a government aid to suppliers now twisted into a tool of coercion for the OEMs, is it at all surprising that this plan is said to have originated with GM VP Bo Andersson?

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7 Comments on “Bailout Watch 475: Supplier Rescue Becomes OEM Bully Stick...”

  • avatar

    Original context of the image? Is that Joe Stalin?

  • avatar
    Edward Niedermeyer

    JP Morgan. Good guess though.

  • avatar

    I disagree. The nine scariest words in the English language are “I’m voting for George Bush because he’s a Christian.”

  • avatar

    Am I the only one here that detects a potential for conflict of interest? If GM and ChryCo (if they make it until the supplier loan program is implemented…) have the means and the motivation to punish recalcitrant suppliers in general, what about suppliers that are primarily dependent on other OEMs (read, Ford)? Could Ford change their mind about participating in this plan simply so that they can protect themselves against the other two “selecting out” Ford leaning suppliers?

  • avatar

    This is what I was talking about, but I seemed to have been ignored. The whole thing is a slipppery, slippery slope. Instead of the suppliers now figuring out how to give the 2.8 the best value while making a profit, they are all spending all their time figuring out how to act so that they are not put out of business as a result of government action.

    The people who take the money aren’t the only ones who will get burned. All the taxpayers get burned, everyone in business connected with, or in competition with people who take the money get burned, and everyone who now won’t get the wonderful products that come from our capitalist machine will get burned.

    Next thing you know, they will come and make some people take the money, so then they can burn them.

  • avatar

    Does anyone actually believe that all this tap-dancing and money infusion is going to save these companies?

    I’m not wild on the government playing favorites with our cash (Chrysler using the bailout cash to lay down money on the hood of their cars while Ford struggles, etc), but how are many of these suppliers going to survive in this market, anyways?

    Being an optimist and working under the assumption that Chrysler and GM won’t go bankrupt, who are going to buy the cars that are filled with the supplied parts? Production is already cut back severely. I don’t think the import factories can make up the difference–they’re working in the same market.

    This whole exercise is an expensive effort to make it look like the politicians are doing something when they aren’t. Bush needed to show that he did give two craps about domestic policy, and the Democrats and Obama want to prove to the rank-and-file UAW members, who have shoveled them cash for the last seven decades, that they did try.

  • avatar

    Appropriate warnings to Chinese manufacturers have been issued:

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