WASHINGTON (AP) -- The Treasury Department opened a $5 billion financing support program on Wednesday to help auto suppliers keep parts flowing to General Motors Corp. and Chrysler LLC as they try to rebound with billions in government aid.
The program, first announced last month, will provide government guarantees for the financing of auto parts that have been shipped to the Detroit carmakers but have not yet been paid for. The funds will be made available from the government's Troubled Assets Relief Program, or TARP, in a financial entity similar to a revolving credit.
Treasury spokeswoman Jenni Engebretsen said it "will help stabilize the auto supply base and restore credit flows in a critical sector that employs more than 500,000 American workers across the country." Ohio ranks first in the U.S. in the number of auto suppliers, with dozens of companies that make everything from leather seat covers to shock absorbers.
General Motors and Chrysler, which have received $17.4 billion in federal aid and face upcoming deadlines to restructure their companies, will designate the auto parts suppliers that need the financing, giving them a large role in determining which suppliers will survive. Ford Motor Co., which has not sought the government aid, has said it does not intend to use the program.
The White House sent a team of 15 people to Detroit on Wednesday to work with GM over the next two weeks to accelerate the restructuring process, an administration official said.
Harry Wilson, an Obama administration auto task force staff member and former partner with Connecticut-based hedge fund Silver Point Capital, is leading the team. It also includes experts from The Boston Consulting Group and investment bank Rothschild Inc., said the official, who spoke on condition of anonymity because the discussions were private.
GM said in a statement that its suppliers were allocated $2 billion and the company was working to put it into operation. "This program will help suppliers access much needed liquidity during these very difficult economic times," said GM spokesman Dan Flores.
Chrysler said in a statement it would receive $1.5 billion under the program. Scott Garberding, Chrysler's senior vice president and chief procurement officer, said it would "help stabilize our supply base, preserve American jobs and ensure the continued production of quality vehicles."
Both companies are required to make a payment valued at 5 percent of their allocation into the program. GM and Chrysler could access the remaining $1.5 billion in the program if they need more supplier aid.
Under the program, suppliers will be able to sell parts that they have not yet been paid for into the government program at a modest discount.
The Treasury Department, working with the Obama administration's auto task force, created the support program to address a critical cash crunch faced by many parts suppliers, whose collapse could lead to the disruption of car production and hurt the ability of GM and Chrysler to return to profitability.
Suppliers who ship parts to car companies typically receive payment for those shipments about 45 to 60 days later. Under normal credit conditions, suppliers sell or borrow against those commitments to pay their workers and fund their operations.
But banks have been unwilling to extend credit to suppliers because of the uncertainty of the auto companies, so the government entity will help parts suppliers access financing.
Many of the nation's roughly 5,000 suppliers have been cash-strapped for several years as GM, Chrysler and Ford have reduced production because of falling sales. The suppliers' outlook deteriorated with the economic downturn, a steep decline in auto sales and prolonged car plant shutdowns in December, January and part of February.
Suppliers earlier this year told Treasury that their estimated March payments from the Big Three automakers was $2.4 billion, compared with an average of $8.4 billion per month in the fourth quarter of 2008, threatening their industry.
In Ohio, suppliers have been in a downward spiral the past five years, due to rising costs for raw materials and automakers increasing pressure to sell them parts at lower prices.
Several already have gone through bankruptcy protection, including Toledo-based Dana Holding Corp., which has no plans to participate in a bailout program. Cleveland-based Eaton Corp. said last month it expects a 10 percent decline in its markets this year.
American Axle & Manufacturing Holdings Inc., Visteon Corp. and Lear Corp. have warned in recent weeks that they could be forced to file for bankruptcy protection if business didn't pick up soon. Meanwhile, Delphi Corp., GM's former parts division, is still trying to restructure itself after more than three years under Chapter 11 bankruptcy protection.