Bailout Watch 526: Supplier Bailout Fails Dramatically

Edward Niedermeyer
by Edward Niedermeyer
bailout watch 526 supplier bailout fails dramatically

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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  • Robert.Walter Robert.Walter on May 11, 2009

    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...

  • Willman Willman on May 11, 2009

    @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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