By on May 11, 2009

The $5 billion bailout of Detroit’s suppliers has “flopped” according to Automotive News [sub]. Even though the bailout funds were made available in mid-March, money has yet to be disbursed even to firms which have been blessed with OEM approval. Problems seem to be traceable back to the decision to use Citigroup to manage the funds. “All our paperwork has been in for weeks,” says one supplier CEO. “But Citibank does not return phone calls or e-mails.” With reports of Citi being “overwhelmed” by supplier applications (aka anyone owed money by GM or Chrysler) and rampant government red tape, what do Citi, GM, Chrysler and the Treasury say about the unfolding boondoggle? Nada. “A Treasury spokeswoman said the government has no information on how the car companies have disbursed the money or to whom. She referred all questions to GM and Chrysler.”

Luckily for suppliers, the supplier bailout is no longer the best taxpayer-funded way to claim what is due to them. Chrysler has received $1.49 billion from its government-funded Debtor-In-Posession financing to pay suppliers. That sum that should cover 88 percent of its supplier debt. According to supplier lobbyists, qualifying firms are likely to fight hard for their portion of that money. After all, supplier firms had to pay a 3 percent fee to have receivables paid earlier than the typical 45 days and 2 percent to have their receivables guaranteed under the initial bailout program. No such premium exists for bankruptcy payments. Unfortunately for Chrysler suppliers, these payments don’t make up for business lost to the Pentastar’s production shutdown.

Meanwhile, GM is moving up a payment to suppliers, according to Automotive News [sub]. 1,500 North American suppliers will be paid on May 28 instead of June 2, in a move aimed at keeping suppliers viable going into a likely GM bankruptcy. No word on the amount to be paid, but with GM looking at a long summer production shutdown, it probably won’t be enough to keep many suppliers from going out of business. Faced with the current Chrysler shutdown and a long summer with little to no production and cashflow, suppliers are now requesting direct aid from the federal government. Citing the apparent Citi mismanagement, government red tape and the Tier-1-only requirements of the current bailout effort, suppliers tell AN [sub] they need direct assistance to prevent rampant bankruptcies.

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15 Comments on “Bailout Watch 526: Supplier Bailout Fails Dramatically...”

  • avatar

    Glad to see that Citibank’s legendary shitty customer service extends all the way up to its corporate customer network.

  • avatar

    Overwhelmed, eh? While 5 billion sits somewhere nice and warm.

    Give me the 5 billion and I’ll watch over it while the paperwork get’s reviewed. I’ll even answer a few emails and phone calls.

  • avatar

    If the government can’t efficiently handle $5B think about the possibilities of $700B+ (the “stimulus package”).

  • avatar

    And why would anyone think a government program would run smooth?

  • avatar
    John Horner

    They don’t call it Shittybank for nothing.

  • avatar

    So far so good on the stimulus money!

  • avatar

    When hundreds of auto suppliers start shutting their doors, this is when the REAL recession will begin. I have the answer for these families who depend on the auto supply business to put dinner on the table…

    Buy lots of oatmeal. Eat oatmeal for breakfast, lunch and dinner. You can save lots of money on food and you can feed a large family economically. If your kids complain after three weeks of eating oatmeal, switch to potatoes.

    You think I’m kidding? The 30’s are coming back.

  • avatar

    The Feds need to ask Toyota how to run a proper keiretsu. The send the business to TARP partner Citi, but Citi fell down on the job.

  • avatar

    To ask Toyota? And then what?
    The Government by its very nature is totally incapable of running anything efficiently and on-time!

  • avatar

    It would not surprise if we found out later that Citibank was keeping the $5 billion on hand as ‘capital’ to make its ‘stress test’ results look better.

    Enron did something similar where they counted money on deposit as collateral (i.e. security in case counterparties did not pay them) as ‘cash flow from operations’.

  • avatar

    The Government by its very nature is totally incapable of running anything efficiently and on-time!

    Know anyone on social security? Ask them about the reliability of their payments. From what I read, the VA is way ahead of most others in the automation of medical IT. Etc.

  • avatar
    Old Guy Ben

    Clearly, $5 billion was not enough. We need to stop dribbling money at the problem, and pour it on!

    (I borrowed this fabulous idea from one of the GM potential bankruptcy threads, or Chrysler bankruptcy inaction threads. Or both.)

  • avatar

    # Ronnie Schreiber :
    May 11th, 2009 at 2:06 pm

    The Feds need to ask Toyota how to run a proper keiretsu. The send the business to TARP partner Citi, but Citi fell down on the job.


    No, don’t ask Toyota!

    What if Toyota answered “get rid of UAW?” What will Obama & Co. do?

    To be clear, this is not a bailout of GM. This is a bailout of UAW.

    To bailout GM, all the government need to do is let GM go to C11, void all existing contract. And then, Toyota/Honda/Nissan would probably inject cash and buy part of GM and make it work. But then, Obama’s mission is to protect the poor UAW workers from the big bad Toyota business model.

  • avatar

    If you think the 3% discount for immediate payable, or the 2% discount for 50 days payable (up from 45 days normally) is bad…

    Chrysler wanted suppliers:
    – to sign a Retraction Agreement cancelling all claims;
    – stay in the program 12 months (life of the original program);
    – 10% holdback for potential disputes (with no explanation of when or how the 10% would be returned to the supplier);
    – potentially requiring the suppliers to stay a supplier until the end of each program they supplied;
    – if the supplier sold in a currency other than USd ,then the supplier had to convert to USD at an undetermined exchange rate…

    The whole deal was just so odeous that I know more than one supplier that was scared away…

  • avatar

    @buzzliteyear wins the cigar!

    -I think it was Citibank that was one of the stress-test banks that was ultimately in trouble.

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