GM seeks credit insurance to help US suppliers maintain parts deliveries

By Rober Sherefkin and David Barkholz, Automotive News

Detroit, Michigan -- General Motors has revealed to its US-based parts suppliers a plan for rolling out a payment-assurance program that it hopes the federal auto task force will approve this month.

GM would like to see up to $4.5 billion in federal aid for the program, to soothe antsy suppliers concerned that a GM bankruptcy might freeze payments for parts delivered.

A "going concern" warning by GM's auditors last week heightened fears that GM may run out of cash to maintain production and pay suppliers.

The warning had been expected. GM said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash -- or obtain a massive loan from the government.

The money would go toward credit insurance. Suppliers would use the insurance to persuade banks to continue to lend them working capital against receivables owed for parts delivery.

Without credit insurance, suppliers could demand cash on delivery for parts, which would accelerate GM's cash problems.

GM COO Fritz Henderson and purchasing chief Bo Andersson explained how the automaker would roll out the proposed program during a Feb. 27 conference call with suppliers, according to a supplier executive who participated in the call. GM wants to launch the program March 31.

A suppliers' trade association has asked the task force for a total of $18.5 billion in aid. That includes $10.5 billion for credit insurance, a "quick pay" arrangement to speed payments to suppliers and a guarantee for loans arranged by suppliers with commercial lenders.

GM spokesman Tom Wilkinson said the automaker favors a receivables credit insurance program, but adoption of such a plan is up to the task force.

The company has said it does not yet have a program it can carry out to provide liquidity for suppliers, but it is counting on the $4.5 billion. The money would insure payments through 2011 for major suppliers and logistics providers, according to the viability plan GM submitted to the U.S. Treasury Department on Feb. 17.

Only US operations of parts suppliers would be eligible for the credit insurance, says a source familiar with GM's plans to enact the program.

Hundreds of suppliers could fail or be forced into bankruptcy if aid doesn't arrive soon, says Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit.

He says North American vehicle production cuts of about 50 percent this quarter will generate meager supplier paydays deep into the second quarter.

From Automotive News (A Crain publication)