U.S. ends loans to struggling automotive suppliers

March 15, 2010
| By Pete Daly |
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One year ago, the U.S. Treasury announced a $5 billion loan program for auto suppliers to help stabilize the American auto industry. That will end this month, but that doesn’t mean everything is now hunky-dory with West Michigan companies in the auto supply chain.

The loan program was more applicable to the largest auto suppliers, but not even many of those took out loans.

“There are very few that ended up actually tapping into that program, the reason being it was extremely expensive,” said Kim Korth, president of IRN Inc., an auto industry information and analysis firm in Walker.

Korth said the government loan program came about when many feared that General Motors and Chrysler might not survive bankruptcy, “but once that near-death experience was gone,” the loan program “really became kind of immaterial.”

The interest rate was “significantly more expensive than traditional bank debt,” said Korth, and it was “a fairly onerous program, which is why a lot of people complained when it first came out.”

After loans for some of the large suppliers were in the pipeline, a backlog built up and “by the time they got through some of the processing, people said … I don’t need it anymore,” she said.

Korth said some mid-sized suppliers below the Tier Ones did apply for the loans, “but I don’t really know of any in the West Michigan area. There may be a few that participated, but if they did, they were very few.”

She wants people to know, however, that auto suppliers are still struggling to get financing.

“Mid- to small suppliers still are having a very tough time getting access to traditional bank financing,” she said. She noted that President Obama has said that if there is another stimulus package or bank loan program, the government will try to make more money available to the small to medium-sized auto suppliers.

Korth said the last couple of quarters have been “very stable” with “improved production levels” for auto suppliers.

“And it looks like that’s going to continue for the foreseeable future. So I think people are modestly optimistic that we are at least out of the worst part.”

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