The federal loans for General Motors Corp. and Chrysler LLC mean cash-strapped parts makers will get paid and offers them some breathing room heading into next year, when they’ll confront their next challenge as automakers slash production.

But some suppliers won’t make it until then.

Cadence Innovation, a Troy supplier of plastic interior parts that filed for bankruptcy in August, plans to close its doors by the end of the month, according to a company memo the Free Press obtained.

The company counted GM and Chrysler as its largest customers and had about 4,000 workers when it filed for Chapter 11 in August; 1,500 of those workers were in Michigan.

A Cadence spokesman did not respond to requests for comment Friday.

Having failed to sell its assets, Cadence is among dozens of automotive firms in bankruptcy, and could be joined by more despite the federal loans announced Friday, industry experts say.

The next major challenge will be surviving production cuts early next year, as automakers limit their products to meet weak demand for vehicles amid the recession. But the cuts will threaten to drain already low cash reserves for suppliers, said Craig Fitzgerald, auto analyst and partner at Plante & Moran.

Financial pain in the supply base has spread from small to large suppliers.

Federal-Mogul Corp. said Friday that it will cut about 4,600 jobs, following the 4,000 job cuts it announced in September.

Even in their weak state, suppliers are among the many stakeholders that are expected to offer concessions in exchange for the loans.

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Michigan lawmakers asked the government on Thursday to make it easier for car buyers to get loans, in hopes of helping U.S. automakers ride out the financial crisis.

The state’s congressional delegation wants Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to use their powers under the $700-billion bailout to buy troubled assets quickly from auto finance companies.

U.S. Rep. John Dingell, D-Mich., also said automakers were considering asking the Fed for access to a program that provides low-cost credit.

“We are not ashamed to point out that this crisis that we have on credit did not begin in the auto industry; it began in the financial industry,” Dingell said.

Dingell, a longtime advocate in Congress for automakers, declined comment on whether the financial crisis could lead to a bankruptcy filing by any of the Detroit Three — General Motors Corp., Chrysler LLC or Ford Motor Co.

“The situation is very serious with regard to all three of the manufacturing companies,” Dingell said. The situation is equally serious for auto suppliers and dealerships, he added.

In their letter to Paulson and Bernanke, the lawmakers said the lack of liquidity in credit markets could cripple the auto industry. Many banks and auto finance companies have tightened credit standards because they cannot borrow money to lend or they have been reluctant to lend and risk defaults.

“They need to do for autos what they’re doing for the mortgage industry,” said Sen. Carl Levin, D-Mich.

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Top-level White House officials should push hard, using emergency measures if needed, to make sure that $25 billion in low-cost loans start flowing to U.S. automakers before the George W. Bush administration leaves office, former Michigan Gov. John Engler said in a speech today at the Detroit Economic Club.

Engler, now president of the National Association of Manufacturers, said he was alarmed to hear that release of the funds — for retooling to produce more fuel-efficient vehicles — may not take place until mid-2009 or later.

Delays would be dangerous to the future of the automakers, Engler said, referring to dwindling cash reserves of General Motors Corp. and Ford Motor Co. and the sharp drops in their stock prices last week.

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GMAC Financial Services said Monday that it tightened its criteria for consumer automotive financing, citing the continued upheaval in the lending industry.

GMAC, the financing arm of General Motors Corp., said the changes include limiting purchases to contracts with a credit score of 700 or above and restricting contracts with higher advance rates and longer terms.

The moves come on the heels of GMAC’s decision last week to increase by 75 basis points the rate it charges dealers for providing non-incentivized consumer auto financing.

GMAC said the current market environment has made it harder and more expensive for it to obtain the funds it needs to make automotive loans. The changes are expected to remain in place until credit markets stabilize and accessibility improves, GMAC said.

GMAC said its wholesale automotive finance business is unaffected by Monday’s changes.

New York-based GMAC is controlled by Cerberus Capital Management, but GM still holds a 49 percent stake in the business.

GMAC, the finance arm of auto maker General Motors Corp. (GM), said it is implementing Monday “a more conservative purchase policy” for consumers. The lending unit will extend auto loans to borrowers with a credit score of 700 or higher. In addition, it will scale back longer-term loans, or those longer than 60 months, and demand higher down payments from borrowers.

The lending unit said it had also increased last week by 0.75 percentage point the standard rate it charges dealers for providing auto loans to consumers. This rate increase doesn’t include lending charges on loans related to special programs, such as 0% financing.

“It’s common to make rate adjustments,” said Gina Proia, a GMAC spokeswoman.

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U.S. auto stocks sank to historic lows Wednesday, as investor fears about credit availability and the weakening global economy combined to produce a stunning sell-off of Ford Motor Co., General Motors Corp. and dozens of other auto stocks.

“Everyone is bailing,” Mark Warnsman, an automotive analyst for Calyon Securities and a former Ford executive, told the Free Press. “There is a crisis of confidence out there.”

Ford shares lost 26 cents, or 8.9%, Wednesday to close at $2.66. They had traded as low as $2.15 earlier in the day.

GM shares fell 65 cents, or 8.6%, to close at $6.91.

Just four years ago, Ford shares traded in the mid-teens, GM shares were above $40 — and investors complained about the deflated stock values.

The shares of several auto suppliers also fell, including Detroit-based American Axle & Manufacturing, whose shares closed at a historic low of $3.81.

The breathtaking devaluations by investors bring the market capitalization, or total stock-market value, for Detroit’s two automakers to just under $10 billion — combined. Ford is now worth $6.02 billion, and GM is worth $3.91 billion.

Toyota Motor Corp., by contrast, is worth almost $106 billion, although its stock value has fallen by more than 40% in the last year.

During the Automotive Hall of Fame induction ceremony Tuesday night, Jason Vines, a former spokesman for Ford and Chrysler, joked about how a share of Ford stock was cheaper than a gallon of gas or a cappuccino at Starbucks.

“Tomorrow, go out and buy some Ford stock, for God’s sake,” Vines, now Compuware’s senior vice president and communications chief, recalled telling the crowd. “You’re going to be rich.”

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Congress appears set to pass a $25 billion loan package to help companies meet new federal fuel-efficiency standards, but Detroit’s Big Three auto makers will still face significant hurdles before they can put the funding to use.

On Wednesday, the House of Representatives voted 370 to 58 to approve a broad spending bill that includes $7.5 billion to start the loan program. The Senate is expected to pass the budget bill this week, and President Bush is expected to sign it.

Once the legislation passes, the Department of Energy would have two months to promulgate its own regulations, governing how and when auto makers and suppliers can apply for the loans and what criteria the government will use to approve those loans.

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Gas prices have certainly made it tougher to find the money to buy a car, but there’s another factor at play now too.

The financial meltdown of some top banks has caused the credit market to get much tighter, making car loans harder to come by these days.

It’s going from bad to worse in the car business; high gas prices kept people off the lots earlier in the year, and now as the cost at the pump moderates, for some it’s the credit crisis making it very tough to get a car loan.

The rates really haven’t changed that much, but lenders are looking deeper at our credit history. The credit score used to be enough, but now they’re looking at things like your time at your last two jobs, or time living at your last couple residences.

“You have to be very careful, because if you go from dealership to dealership to dealership and just keep trying to find someone who will get you bought and all these banks see that no one’s buying you, you’re going to have a hard time getting bought,” says Kris Tucci of Americar.

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A Consumer Federation
of America (CFA) analysis of the most recent Federal Reserve Board Survey
of Consumer Finances reveals that Latinos pay much higher used car loan
rates than do other Americans. Slightly more than half of all automobile
loans taken out by Latinos were for used cars.

On 2004 loans for used car purchases, Hispanic-Americans paid a typical
(median) rate of 9.0 percent compared to a typical rate of 7.5 percent for
all borrowers. Moreover, a far higher percentage of Latinos, than other
Americans, were likely to pay used car loan rates of at least 15 percent –
18.5 percent of Latino borrowers compared to only 9.2 percent of all
Americans.

There were not, however, large disparities in typical loan rates for
new cars — 5.5 percent for Hispanic-Americans vs. 5.0 percent for all
Americans. And the percentage of these loans over 15% for both groups was
small and nearly the same — 1.8 percent for Latinos and 2.2 percent for
all Americans.

“One could speculate that recent immigrants with low incomes and little
experience negotiating low loan rates almost always purchase used cars,”
said Stephen Brobeck, Executive Director of the Consumer Federation of
America (CFA), which oversees the Hispanic America Saves campaign. “That
could help account for the loan rate gap for used car purchases, which does
not exist for new car purchases.”

“We’ve seen recent immigrants struggle with high-interest car loans,
and in the worst cases it can decimate their finances. But at the same
time, owning a car provides access to jobs and opportunities. That’s why we
work to provide consumers with advice and support on smart car buying, so
buying a car can be a stepping stone to financial stability, not a
barrier,” said Angelo Gonzalez, director of the Economic Independence
project at the Cuban American National Council (CNC). Gonzalez also
coordinates the Miami Saves campaign.

Latino Car Purchasers Can Take Measures to Ensure the Lowest Possible
Car Loan Rates

“One of the most important step Hispanic Americans can take to lower
auto loan rates is to call or visit their credit union for a rate quote
before going to the car dealer,” said Patty Briotta, public relations
manager for the National Association of Federal Credit Unions (NAFCU). “By
doing their research upfront and perhaps even securing pre-approval through
their credit union, they can compare finance rates and improve their
negotiating ability tremendously.”

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As the credit woes continue around the nation, people are now finding it tougher to get car loans.

If you have a credit score in the lower 600s getting even a car loan is getting tough. “It really does seem like the average person and the harder credit person is really having a lot more trouble getting a loan now,” an employee at a car dealership told us.

The car dealership employee we spoke with asked we not use his name but says lenders are really cutting back, making it hard on customers and dealers. And large lenders, such as global banking giant HSBC, has stopped writing auto loans altogether in the U.S.

So if you really need to buy a car, he says, “Go back to the old days a little bit and save up some money and have a down payment.”

One car loan agency says the number of auto loans dropped 17 percent in the second quarter.

By Randall Jeppesen reporting

at KSL.com

BY JUSTIN HYDE • FREE PRESS WASHINGTON STAFF

WASHINGTON — The auto loan package before Congress could save Detroit’s automakers billions of dollars and speed their ability to refit factories for hybrids and other fuel-saving models that customers want and regulators demand.

With just two weeks left before Congress calls it quits before the election, automakers and Michigan lawmakers worked Thursday on ways to broaden the $25-billion loan package and win approval from President George W. Bush.

Automakers have support of Democrats and some Republicans in both chambers, but the Bush administration has yet to signal its approval, and environmental groups issued their first organized opposition to the plan Thursday.

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