The auto industry bailout may spread to suppliers
Bailing out the car companies doesn't work well if a number of their suppliers shut down. Getting out the new 2010 models will be tough if the cars can't be assembled due to missing parts.
All of the money that taxpayers have put into Chrysler and General Motors may be jeopardized by the potential bankruptcies of a number of the firms that build brakes, transmissions, and seats.In an exclusive report,Bloomberg writes, "U.S. car-parts suppliers plan to ask President Barack Obama's auto task force this week for $8 billion to $10 billion in loan guarantees, after negotiating federal loans earlier this year." The news may cause taxpayers to ask: "where does it end?"
The bailout of the car companies has already stretched into the tens of billions of dollars. If the domestic auto market does not recover, even the huge cuts made by Chrysler and GM may not be enough. The Treasury may throw good money after bad to protect the investment it has made in Detroit. Now parts suppliers claim to need more money to keep supply chains open.
The car parts companies do need money. Vehicles sales in the U.S. have dropped from over 16 million four years ago to a run rate of ten million this year. That has killed revenue at many of Detroit's suppliers. Claims that some of the firms may have to close is not a bluff.
The bailout of Detroit will grow as the months pass. Higher gas prices may be the next element that prolongs the industry's recovery. The federal government may end up staying in Detroit much longer than it expected.
Douglas A. McIntyre is an editor at 24/7 Wall St.