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Supplier Aid Next Step By Obama Team

The announcement by the Treasury Department that it will provide up to $5 Billion in federal aid is the next move by President Obama's auto task force to help the auto industry avoid a collapse. It's a measured approach that addresses the immediate threat to suppliers and auto makers while making it clear the suppliers will need to continue their own programs to make their companies leaner, more efficient, and ultimately profitable.

Here's how the program will work.

* The Treasury Department is pledging up to $5 Billion in aid

* The Supplier Support Program will guarantee payments for parts that are shipped

* It will be run through the auto companies (GM and Chrysler have already agreed to participate)

* The auto makers will decide which suppliers and receivables are covered

Critics will immediately focus on the $5 Billion and say the Federal government is throwing more money into an industry that is hopeless. In my opinion, that view is flawed. Here's why.

Washington has to do something to keep the auto industry from collapsing.

With at least a third of the suppliers already in violation of their debt covenants, facing bankruptcy, and coping with little or no income from auto makers who shut down assembly lines in January, these guys were weeks, if not days, from following each other into chapter 11. The threat of cascading bankruptcies among suppliers was (and to a lesser extent still is) a very real possibility. So Washington had to stabilize the suppliers.

Let's be clear, this is not a loan. This is not a blank check for all suppliers. It is a targeted approach to making sure the most critical companies and parts are not shut down and that they in turn do not shut down the Big 3.

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- Ford Motor

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- Nissan

- Honda Motor

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