Remember back when the Detriot automakers and their friends were telling us that the collapse of one of the automakers would mean an economic armageddon as all the suppliers to the Big Three would instantly become insolvent as well? That little story helped the Big 3 get their way in Washington. But now it seems those suppliers are going bust anyway.
In a request dated Monday to the Treasury Department, an industry group representing 400 parts makers asks for $25.5 billion in aid and guarantees.
“Without immediate assistance to suppliers, the country will face massive job losses and the eventual breakdown of the entire automotive sector in the United States,” says the 11-page request from the Motor & Equipment Manufacturers Association.
The document says more than 40 car-industry suppliers filed for Chapter 11 bankruptcy protection in 2008.
How could the autoparts suppliers be in such trouble now that we rescued the automakers? Shouldn’t the bailout money that went to the automakers have some kind of multiplier effect or trickle down to autoparts makers? Well, it might if the automakers were spending the money we gave them by building cars. But with GM’s sales falling 49% in January and Chrysler’s dropping 55%, there’s just not a demand for the parts. To put it in terms we’re familiar with from the banking bailout, the automakers are hording money to bolster their own financial health and can’t find much opportunity to put the money out there in a recessionary economy.
The bailout of the autoparts makers has a certain iron clad logic to it. We had to bailout Chrysler and GM in part to save the suppliers. And ance you’ve bailed out Chrysler and GM, it certainly doesn’t make sense to let their crucial suppliers go under. You can tell it’s logical because it’s so circular, right?