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Auto parts suppliers may ask for $25.5B

As car sales plummet, the companies that make the parts are looking for their own government assistance.

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By Peter Valdes-Dapena, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- A group representing auto parts suppliers may ask for as much as $25.5 billion in federal aid as the industry struggles under falling car sales and production cutbacks.

The Motor & Equipment Manufacturers Association, a trade group representing auto parts makers, is working on a request to access $8 billion in federal loans from the Treasury Department, group president Bob McKenna told CNN.

MEMA is also asking for $10.5 billion in loan guarantees that would support loans made against outstanding invoices owed by General Motors (GM, Fortune 500) and Chrysler, carmakers that have already received federal assistance.

Automakers typically take 45 days to pay for a shipment of auto parts. Parts suppliers typically take out loans using those "receivables" as collateral, allowing them to continue operations until the bill is paid. Industry representatives have complained that it is now virtually impossible to get loans against receivables from GM and Chrysler.

To further help cash flow, suppliers also want $7 billion to help their customers, major automakers, speed up their payments and get them their money in 10 days rather than 45.

"We are in discussions with the Treasury, administration, but we haven't figured out yet what the best solution is," McKenna told CNN. He described the request as a "work in progress," and that MEMA has not yet made an official submission to Treasury.

Treasury officials would not comment on the request.

Auto parts suppliers currently employ about 600,000 people in the United States, according to the Original Equipment Suppliers Association, a group affiliated with MEMA. But the loss of one auto industry job means the loss of four other jobs in other industries, parts manufacturer groups have argued.

"Vehicle manufacturing and parts producers have of the greatest, if not the greatest economic multiplier effects, looking at the support systems, said David Andrea, vice president for industry analysis and economics at the OESA.

Vehicle production is down of over 40% from last year, Andrea said, and that has put enormous pressure on the entire industry. Industry analysts have predicted that hundreds of auto parts suppliers could fail this year, which would leave the industry ill-equipped to benefit from any eventual upturn in the economy.

Separately, the National Automobile Dealers Association is working on a request for roughly $10 billion in federal loan guarantees that would cover inventory financing loans for dealerships. Under NADA's planned request, funding for the guarantees would come from Treasury Department's Troubled Asset Relief program.

Auto dealers employ more than a million people in the U.S. according to NADA spokesman, David Hyatt. More importantly, he said, auto dealerships provide enormous amounts of tax revenue for states and communities. Auto sales represent about 20% of all retail sales revenue in the U.S., according to a report commissioned by NADA.

CNN's Karina Frayter contributed to this report. To top of page

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