Auto Parts Get $5 Billion Bailout: Where Does the Cycle End?
Nicolas Loris /
In February, groups representing the auto parts suppliers asked for a $25.5 billion bailout from the Treasury. Yesterday, the Treasury announced parts suppliers will receive about one fifth of that through Troubled Asset Relief Funds:
The Treasury Department announced a $5 billion program to aid struggling auto-parts suppliers, raising the likelihood the government will extend more aid to General Motors Corp. and Chrysler LLC.
The assistance expands the government’s intervention in the auto industry, which was kicked off by Treasury’s $17.4 billion in loans granted to GM and Chrysler in December. But Treasury officials sought to tamp down expectations that other parts of the economy might also be eligible for aid.”
At the surface, it makes sense. Why bailout the automakers if you’re not going to bailout the parts suppliers? But this could be a vicious cycle. Is it the automakers’ turn to receive more money? According to many, yes:
For many observers, the government’s move solidified a sense that the administration would provide more aid to GM and Chrysler and avoid pushing the companies into bankruptcy. The administration plans to lay out its view on the companies’ viability by the end of the month.
This ‘clearly signals that bankruptcy is not an option for the auto makers,’ said Michigan Rep. Thaddeus McCotter, a Republican. ‘Why would you help the supply chain and not help the two auto makers?’”
There are more questions we can ask. Will the bailouts extend to other parts of the economy other than autos, homeowners and banks? A number of companies today could make the case that their respective industry is vital for the economy and begin requesting billions of dollars in bailout subsidies. Just as it has in the auto industry’s case, this could trickle down to suppliers to these companies. So the million dollar question (or billion or trillion) is: When will it end?