Ease cash crunch, parts suppliers urge export agency
A key federal program to support struggling auto suppliers isn’t helping many companies any more because of worsening economic conditions, particularly at Chrysler, an industry leader says.
Gerald Fedchun, president of the Automotive Parts Manufacturers Association, said yesterday Export Development Canada needs to loosen eligibility rules for a program under which suppliers can qualify for insurance on receivables.
"Under the current rules, EDC has to look at it under commercial terms, but conditions have deteriorated and the government needs to loosen the rules so it can continue to assist us," Fedchun told the Star.
"At the moment, they are not even writing any new insurance on Chrysler (business)."
The insurance has become a lifeline for many suppliers who are short of cash because of a plunge in auto demand.
They sometimes have to wait several months before automakers pay them, which leaves them short of critical capital.
The insurance program mitigates suppliers’ commercial risks so they can expand sales and motivate banks to extend more working capital.
Auto-parts makers have been struggling for years because of price pressures from automakers and rising production costs for materials and energy.
But many of them are now starving for cash because of the crash in the North American auto market during the past six months.
That has led to the temporary shutdown of many assembly plants, much lower demand for parts and an industry cash crisis.
"EDC has been good to us but companies can’t get insurance now because the risk factor has increased in view of the market," Fedchun said fast payday loans.
EDC spokesperson Phil Taylor said the self-funding Crown corporation is trying to do more for domestic suppliers while maintaining commercial principles on creditworthiness and business viability.
"We have to go to the global bond market like others," he said. "Having said that, we take a longer term view on price risk over a number of years rather than a couple of quarters. And we are doing more while others recede."
Ottawa says EDC provided a total of $4.2 billion in commercial assistance through financing and insurance to nearly 600 companies in the auto industry last year.
Insurance for receivables accounted for about $3.2 billion.
EDC has provided an additional $70 million in new coverage this year, which could support up to $28 million in new sales.
Earlier this week, the U.S. Treasury Department announced about $5 billion (U.S.) in aid for the American auto parts industry, including a similar insurance program to the one Canada started last year.
Industry analysts have warned that if some auto suppliers fail, it would trigger a domino effect through the sector that could hold up other parts operations and major assembly plants.
GM and Chrysler have already received billions of dollars in loans from Washington and are also seeking aid packages from the Canadian and Ontario governments.