It's not exactly a surprise that the auto parts makers are getting a bailout. We knew they were lobbying to have a bit of the congressional pork set aside for them. But the manner of the final bailout ought to raise citizens' eyebrows.
The government will shuttle $5 billion to the parts companies that supply Detroit's automakers, on the grounds that these companies have shipped parts to General Motors
But the aid won't go directly to the auto parts suppliers themselves. Instead, it will be channeled through GM and Chrysler, who will ultimately decide which critical suppliers qualify for the program. Ford
The plan requires the automakers to pay a 5% fee of the total funds given to their suppliers. In turn, the suppliers will also be charged fees for participating: 2% of the receivable for a guarantee and 1% more to get cash. According to the Treasury, the suppliers will get a government guarantee they'll be paid money owed them by the carmakers "no matter what happens to the recipient car company."
That's scary. If either (or both) GM or Chrysler ends up declaring bankruptcy, taxpayers will be on the hook "no matter what." The hopeful among us might suggest that this move foretells the government's plans to shovel billions more to the automakers. They've requested another $21 billion on top of the $17 billion already received, so why else would we bail out their suppliers? But it might also mean that the government anticipates one or both of the automakers going belly-up, or even a shotgun wedding between the two.
Shares of the auto parts suppliers jumped on the news, but that doesn't mean investors should rush in. This is bound to be a bumpy process; GM and Chrysler are the ultimate arbiters of who gets what and how much, so the largesse certainly won't be spread around evenly. Taxpayers, on the other hand, can justly assume that it will be another costly tab they'll have to pick up.