Proposal | Frequently Asked Questions | Press | Contact

Joe Juliano, CEO PrimeRevenue, and James D. Robinson III, former Chairman and CEO of American Express Company; General Partner, RRE Ventures; board member of PrimeRevenue.

December 12, 2008

Many in government, the private sector and academia have joined the heated debate over whether the federal government should provide financial assistance to General Motors, Ford and Chrysler or simply allow the Big Three to file for bankruptcy.

Supply Chain Finance, or SCF, is a powerful option that should be immediately explored. It would provide the Big Three the time needed to resolve the fundamental issues with their businesses and become successful again. It would provide them billions in working capital immediately. It would inject cash into the entire automotive supply chain. It would preserve the multitude of jobs at risk right now. And, importantly, it would do so while minimizing the impact on the taxpayer.

The private sector has been offering SCF programs for years. Most financial institutions, Bank of America, Morgan Stanley, Wells Fargo, JP Morgan Chase, Citibank - to name a few - provide these offerings. Solution providers such as PrimeRevenue and others deliver the technology and enablement services.

For over four years, General Motors itself was running a program with PrimeRevenue, and before that, with GE Capital. If credit were available, GM could restart the program in days and begin generating free cash flows. Chrysler has already spent months getting ready to run an SCF program and, like GM, could be up and running on a program very quickly. It is an option for Ford as well.

An SCF program could be re-deployed for the Big Three under the authority of either the Troubled Asset Relief Program (TARP) or, alternatively, the existing authority of the Federal Reserve. The simplicity of the program is that it does not require federal funding. Rather it is based on a federal credit guarantee. Among the automotive assistance options currently being discussed, there are several advantages to SCF:

1. Funding comes from private sector financial institutions rather than the U.S. Government.
    
2. The federal guarantee removes Big Three creditworthiness as a requirement to funding.
    
3. This will inject private sector credit directly into the automotive supply chain: over $25 billion in cash flow to the Big Three while their suppliers would realize over $30 billion. These values only reflect the benefits to U.S.-based direct material suppliers. They would be much more significant if the SCF program applied more broadly across the Big Three supplier community.
    
4. Unlike a loan or capital investment where use of proceeds is difficult to prescribe, the guarantee is completely directed to improve the Big Three’s working capital, while simultaneously benefitting the supply chain itself.

Under such a government-backed SCF program, the US Government would set up a facility to purchase receivables from participating financial institutions in the event one of the Big Three fails to pay these as they become due. The process would work as follows:

1. The Big Three begin the process by extending payment terms to their suppliers to 90 or more days. This will generate approximately over $25 billion in cash flow to the Big Three. This increase in free cash flows will provide the time to address the underlying structural issues of their businesses.
    
2. Through the SCF offering, suppliers can sell their receivables to participating financial institutions for immediate payment, well in advance of the extended due date. This generates over $30 billion in cash flow to the benefit of suppliers and provides them cash that they otherwise would not be able to get in advance.
    
3. In the event that the Big Three default, either TARP or the Federal Reserve would buy the Big Three receivables from participating financial institutions at face value. This is key to ensuring that the program attracts the liquidity required from private financial institutions to make the SCF platform function.

A US-government backed SCF program is a powerful solution to help provide time for the Big Three to resolve structural issues and become successful again. It will inject over $50 billion in cash flow to the automotive industry. It will preserve jobs. And it will be done in a way that minimizes the use of treasury dollars. It has been successfully deployed in the automotive industry and can be re-engaged immediately.

We believe it is a powerful alternative that is a prudent use of taxpayer dollars, protects jobs, and delivers what the American auto industry needs most right now – time.

top