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Automakers Try to Calm Jittery Suppliers


Both GM and Chrysler send out letters assuring parts companies that the automakers have enough cash to pay them

Even as a federal bailout for the carmakers goes down to the wire in the Senate, General Motors (GM) and Chrysler are moving to calm the nerves of their suppliers.

Both companies have sent letters or have spoken to key suppliers, assuring them they will get paid. In a letter sent to at least one parts maker earlier this week, GM pointed to its third-quarter earnings filing, which said the company had $16.2 billion in cash and $2 billion in credit lines open. "This remains a substantial pool of liquidity," the letter said. GM also had a telephone conference with its top 325 suppliers this morning, and the subject came up. On the monthly call, GM President and Chief Operating Officer Frederick A. "Fritz" Henderson and Bo I. Anderson, the company's group vice-president for purchasing, talked about current business conditions and the talks going on in Washington. In response to supplier questions, Henderson assured suppliers that they will be paid for current parts orders.

A few suppliers have even asked GM for payments in advance. But the automaker says it has contracts to get parts on credit and expects suppliers to uphold the contracts. The company also maintains that the parts makers will get paid. Chrysler sent out a similar letter, saying it would meet with key suppliers on Dec. 12 to assure then that payments will be made, said one person who received the letter.

The two automakers have spoken with their suppliers as Congress continues to tussle over a bill that would provide $14 billion in loans to get the companies into January, when President-elect Barack Obama takes office and, along with a more heavily Democratic House and Senate, will work to fashion an assistance plan for the carmakers.

Iffy Republicans

The House of Representatives passed an assistance bill on Dec. 10, but Senate Republicans threw a wrench in the machine the next day. GOP senators threatened to vote against the bill or stop its progress with a filibuster. Senator Robert Corker (R-Tenn.) has proposed tougher language in the bill to force the car companies to restructure, which is intended to win GOP votes, but passage is anything but assured.

As both GM and Chrysler continue to burn cash, and political support for a bailout looks shakier, the companies still need to keep parts rolling in. Some parts makers have already asked for tighter payment terms, Bloomberg reported on its Web site.

Parts makers could start demanding cash as payment for parts, says Jim Gillette, director for financial services at CSM Worldwide, which does research and consulting for the auto industry. But suppliers have to be careful, he says. Those that have gotten tough on Detroit's carmakers in the past have paid a price: "Every supplier is afraid that if they piss off GM, they will never get another job again."

At least commercial banks are getting lenient with suppliers, Gillette says. Some of the banks have been letting suppliers slip below some loan covenants without penalty for fear of starting a credit crunch that could hammer the entire parts sector, he says.

Welch is BusinessWeek's Detroit bureau chief.

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