Now, About That Other Bailout...

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THE PLANK MARCH 19, 2009

Now, About That Other Bailout...

If you've followed the debate over the auto industry, then you know a key factor in assisting the Big Three was their relationship with suppliers. Some are big, some are small, nearly all are in trouble. Analysts repeatedly warned that letting even one of the Big Three collapse would lead to a chain reaction, in which suppliers collapsed too--with the resulting disruption to the supply chain crippling whichever of the Big Three remained.

Now those suppliers are getting some direct asssitance, in the form of loans and guarantees that contracts with the Big Three won't go unpaid, no matter what happens to those companies. From the New York Times account:

“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,” the Treasury announcement said.

...

Suppliers
will get a government guarantee that money owed them by auto
manufacturers for parts will be paid “no matter what happens to the
recipient car company,” according to the Treasury statement.

The administration's auto taskforce hasn't decided what to do about Chrysler and General Motors, both of whom have asked for more assistance. This seems like a reasonable step to take in the interim, although--confession--I haven't made so much as a phone call to learn more about the move. 

As the Detroit bureau chief, I hope to change that soon, as I get back up to speed on the issue more generally. One item I'll note, however: The steep decline in auto sales has hit every car company in the world. Even Honda and Toyota asking for help from its government--although, to be fair, those companies have built up huge cash reserves that should allow them to survive the downturn.

--Jonathan Cohn 

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