Truckers Seen Benefiting From Auto Supplier Plan

This story appears in the March 30 print edition of Transport Topics.

The Treasury Department’s $5 billion program to help cash-strapped auto suppliers will benefit carriers that haul both parts and finished vehicles for automakers, trucking officials said.

The Auto Supplier Support Program, to be administered by General Motors and Chrysler, will allow Tier One suppliers to the industry — such as auto haulers — to keep operating by selling their receivables to raise cash and increase liquidity. Spokesmen for GM and Chrysler told Transport Topics the details for the plan announced on March 18 still are being finished.

“People talk about dire straits that the auto industry is in, but they don’t talk about the dire straits of the people who make the parts or carry them,” said Larry Davis, president of the Ohio Trucking Association.

“The auto industry is hurting; that has a huge impact on our members” because fleets carry parts several times, from the moment they are originally manufactured by a smaller firm until the time the finished vehicle is delivered, Davis said.

The Motor & Equipment Manufacturers Association and the Original Equipment Suppliers Association last month asked the Treasury for help. The groups said the sharp falloff in car and light truck sales could put two-thirds of suppliers in financial distress in 2009, after 40 filed for bankruptcy protection last year.

Last month, the annualized rate of auto and light truck sales was 9.1 million, the lowest in 28 years and 40% lower than last February, based on data released by individual automakers. Assurances that suppliers will be paid should help truckers in multiple ways, such as assuring payment.

“There is some trepidation among the carrier community in accepting the freight” from both automakers and suppliers be-cause of their financial difficulties, said Bob Farrell, executive director of the Automobile Carriers Conference of American Trucking Associations.

Farrell also heads the Distribution & LTL Carriers Association, whose members haul auto parts and other freight.

“It’s a big plus for the trucking industry in Indiana,” said Kenny Cragen, president of the Indiana Motor Truck Association.

He said at least one third of his group’s 550 members derive at least 20% of their business from the auto industry.

Some Indiana truckers have parked 35% to 40% of their equipment because of the slowdown, he said.

“The secondary thing that is important is that it will put people back to work,” Cragen said, which will boost truck shipments for the overall economy.

Automakers’ spokesmen acknowledged they don’t yet know precisely how the program will work.

“Treasury is in talks with Chrysler, GM and suppliers to iron out details of the plan and eligibility requirements,” said Dave Elshoff, a Chrysler spokesman.

“We are actively working with Treasury to finalize the program,” said General Motors spokesman Dan Flores.

“We don’t have any specifics at this point in time. We’ll get the information to suppliers as quickly as possible,” Flores added.

The Treasury Department said in a statement that suppliers that want to participate will have to first obtain their lenders’ permission to sell receivables. If lenders approve, suppliers then will contact the automaker.

“The program will provide supply companies with much-needed access to liquidity to assist them in meeting payrolls and covering their expenses while giving the domestic auto companies reliable access to the parts they need,” Treasury Secretary Tim Geithner said in a statement announcing the start of the program.

As in other factoring programs, suppliers that sell their receivables will pay a fee. The program applies to shipments after March 19, the first date when a receivable that resulted from shipping a product to an automaker would be covered.

Typically, auto suppliers are paid in 45 days to 60 days after they ship products to manufacturers and cover their cash flow needs in the intervening period by borrowing against those expected payments, or receivables.

“This is a tremendous step toward stabilizing the supply base, which will benefit the domestic automotive manufacturing industry,” Bob McKenna, president of MEMA, said in a statement.

Ford Motor Co. has said it won’t participate in the Support Program because its vendors are paid in a timely way at present.