Auto suppliers get relief

March 24, 2009
By: Tim Heston

A friend of mine in college couldn't wait to get to Detroit.

A mechanical engineering major, he loved cars. He worked at summer co-ops trying to get his foot in the door. He'd talk about designs, inside and out. And though I never saw him do it, I bet he was the kind of guy who ran his hand across a well-made vehicle, admiring the flawless fit and finish. He admired all the parts that made up a logical whole, and together they made up a system that could continually be perfected.

Last week the government lent a hand to makers of those parts who for too long just haven't been getting paid. The Treasury Department announced $5 billion in aid to auto parts suppliers, a number far below the $25 billion suppliers had wanted. But it's something, and at a time when taxpayers cringe as they read about bailout after bailout, the industry isn't taking that $5 billion for granted. Advocacy groups are applauding the measure, but concerns abound.

Precision Metalforming Association President William Gaskin praised the aid but said the jury's still out as to whether the aid will trickle down to the lower-tier suppliers. "The financial situation of many Tier 1 companieswho need to shore up their balance sheets and reduce debtis so substantial that meeting obligations of their lower-tier suppliers could be a low priority," he said in a statement released last week.

This mirrors the bank bailouts. Billions have been shoveled their way, and for months bankers have raked it in to improve their battered balance sheets in order to stay solvent, instead of lending it out to feed the economy. (Though all are hoping the Treasury's toxic-asset plan, announced yesterday, will change matters.)

Unlike the bank bailouts, the auto bailouts sit better with me, because they directly help companies that employ people who make physical things of value. Sure, the entire industry will evolve in the coming years to adapt to ever-changing consumer demand. According to yesterday"s Wall Street Journal, for instance, carmakers had retooled plants and ramped up production of small cars in the wake of high fuel prices, only to see those little cars sit on lots as gas prices plunged and consumer demand dried up.

Reports of a silver lining are emerging, however. Yesterday, for instance, Bloomberg said that inventories during this recession have plunged much faster than in previous downturns. With just-in-time manufacturing ruling the day, supply chains react faster, acting almost in concert as they put on the economic brakes—hence the unprecedented drop in inventories worldwide. On the flip side, however, these companies will be able to ramp up inventories quickly as consumer demand picks up.

As we"ve been told, to spur demand the banks need to start lending to once again start lubricating the world economic engine. Will the government's plan to rid the system of toxic assets work? I haven't a clue. We probably won't know until after the fact, but it's nice to know the government is also paying attention to auto suppliers, those manufacturers of real engines and other components. It's the kind of work you can touch, admire the fit and finish, and work to continually perfect.

I've lost touch with my mechanical engineering buddy from college, but I've got a feeling he would agree.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
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