According to the Detroit News, auto suppliers are currently facing serious problems, with many automakers cutting down production. Because many of them are on the verge of bankruptcy, the Motor & Equipment Manufacturers Association submitted an urgent request to the Treasury Department on February 13, asking for a $18.5 billion loan.
If the government doesn't give a helping hand to the US auto suppliers "the number of supplier liquidations would be very high, potentially putting the entire industry at risk," PriceWaterhouseCooper's Automotive Institute explained in a report this week.
Furthermore, the suppliers' bankruptcy might also lead to a considerable increase in the unemployment rate. "Without immediate financial assistance from the U.S. Treasury, the country will be faced with further major job losses and the eventual breakdown of an entire sector of our nation's economy," said Bob McKenna, president and CEO of the Motor & Equipment Manufacturers Association.
However, so far it is not yet known whether the government would guarantee bank financing or provide outright financing. The problem was also debated but the Obama auto team during a round of meetings Monday with the purchasing chiefs from GM, Chrysler and Ford Motor Co. and they have also discussed it with members of Congress. In addition, auto suppliers have also met with the Obama auto team on Monday to discuss the matter.
More importantly, if major American auto suppliers go bankrupt, this will highly affect the Detroit-based automakers as well. "There's a real risk that the supplier base goes into bankruptcy and brings Ford and Chrysler and GM with it. So, we can't just focus on the big OEMs," Michigan House Speaker Andy Dillon said. "Not every supplier is going to survive this consolidation."
The most difficult problem for the Treasury Department is to decide which suppliers to help. PriceWaterhouseCooper thinks that the government should take into consideration auto suppliers who are vital for the Detroit Big Three.
What will the Treasury Department finally decide is not very clear at the moment but one thing is certain: if the US wants to help its auto industry, it should also consider "the iceberg below the water" as well.
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