Auto suppliers to get $5 billion in aid:

The Treasury Department will pump up to $5 billion in financing into troubled auto parts suppliers to prevent an auto industry collapse that could undermine the government’s work to restructure General Motors and Chrysler.

The funds, announced Thursday, will be made available from the government’s Troubled Assets Relief Program, or TARP, in a financial entity similar to a revolving credit. Large suppliers would be eligible for financing auto parts they have shipped to the Detroit carmakers but have not yet received payment.

U.S. automakers — General Motors Corp., Chrysler LLC and Ford Motor Co. — will have the option of using the program and designate the companies that need financing, giving them a large role in determining which parts suppliers will survive.

The program could have a significant impact in Ohio, which ranks first in the United States in the number of auto suppliers.

GM and Chrysler, which have received $17.4 billion in government loans, said they would use the program. Ford, which has not sought the government aid, said in a statement it would not participate “as we remain viable and expect no issue with continued payments to our suppliers.”

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“The program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need,” Treasury Secretary Timothy Geithner said in a statement.

Officials said foreign automakers with U.S. operations would not be eligible to use the so-called “supplier support program.”

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Auto suppliers have sought up to $25 billion to stabilize the beleaguered U.S. auto industry and have met with members of President Barack Obama’s auto industry panel, which is trying to restructure GM and Chrysler. The two companies want an additional $21.6 billion in aid.

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But the program was not intended to save company in the supply chain. Treasury officials said certain suppliers would still fail as part of the natural business cycle and analysts expect some suppliers to collapse because the industry has too much manufacturing capacity for current sales levels.  Suppliers that manufacture body side moldings and other parts that can be duplicated elsewhere will not likely receive the aid, he said.

Suppliers who ship parts to car companies typically receive payment for those shipments about 45 to 60 days later. Under normal credit conditions, suppliers sell or borrow against those commitments to pay their workers and fund their operations. But banks have been unwilling to extend credit to suppliers because of the uncertainty of the auto companies, so the government entity will help parts suppliers access financing.

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Under the program, auto companies will be required to pay a 5 percent fee of up to $250 million to join. Suppliers will have to agree to terms of the government-backed protection and pay a small fee to participate. Suppliers will be able to sell parts that they have not yet been paid for into the government program at a modest discount.

Parts makers employ about 600,000 people nationwide and many of the nation’s roughly 5,000 suppliers have been cash-strapped for several years as GM, Chrysler and Ford have reduced car and truck production because of falling sales. Their outlook has deteriorated with the economic downturn, a steep decline in auto sales and prolonged car plant shutdowns in December, January and part of February.

Suppliers in Ohio have been in downward spiral the past five years, long before the economic meltdown, sandwiched by rising costs for raw materials and automakers increasing pressure to sell them parts at lower prices.

Several already have gone through bankruptcy protection, including Toledo-based Dana Holding Corp., which this week said it will cut 5,800 people worldwide, taking it down to 23,000 employees by year’s end. But the company has no plans to participate in a bailout program.

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Cleveland-based Eaton Corp. said last month it expects a 10 percent decline in its markets this year. Elsewhere, American Axle & Manufacturing Holdings Inc., Visteon Corp. and Lear Corp. have all warned in recent weeks that they could be forced to file for bankruptcy protection if business didn’t pick up soon. Meanwhile, Delphi Corp., GM’s former parts division, is still trying to restructure itself after more than three years under Chapter 11 bankruptcy protection.

In all, auto suppliers have said that more than 40 major suppliers have filed for Chapter 11 bankruptcy protection and more could collapse if the government does not act.

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“This aid comes at a critical time for this vital industry,” said Rep. John Dingell, D-Mich. “I am pleased the program will be able to keep the doors open and lines operating at many U.S. auto suppliers.”

Auto supplier & manufacturer have rallied in the past week. With bankruptcy out of the picture these stocks can keep rallying…no more safe to short them

New Housing Construction Report:

The number of new housing projects that builders broke ground on in February rose sharply, defying economists’ forecasts for yet another drop in activity.

The Commerce Department reported Tuesday that construction of new homes and apartments jumped 22.2 percent from January to a seasonally adjusted annual rate of 583,000 units. Economists were expecting construction to drop to a pace of around 450,000 units.

February’s pickup was led by a big increase in apartment construction.

By region, all parts of the country reported an increase in overall housing construction, except for the West, which led the housing boom and has been hard hit by the bust.

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Overall housing construction activity fell to a pace of 477,000 units in January, according to revised figures. That was a little higher than first reported but still marked a record low.

Applications for building permits, considered a reliable sign of future activity, also rose in February by 3 percent to an annual rate of 547,000. Economists were expecting permits to fall to a pace of 500,000 units. Even with February’s rare burst of activity, housing construction is down a whopping 47.3 percent from a year ago.

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The Obama administration has announced a $75 billion program to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.

More than 2 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.

Home mortgages are harder to come by because of the credit crisis and unemployment is at a quarter-century peak of 8.1 percent, factors that will make it difficult for the depressed housing market to snap back to full health.

Builders aren’t optimistic that will happen any time soon.

Home-builder and REIT stocks have seen a steady rise in the last 2 days. The rise has been due to profitability news from banks and new home construction jump. However it is too early to get bullish. We need to see many months of solid data before jumping on the bull bandwagon.

Foreclosure Report: Foreclosures up 30 percent in February

Despite halts on new foreclosures by several major lenders, the number of households threatened with losing their homes rose 30 percent in February from last year’s levels, RealtyTrac reported Thursday.

Nationwide, nearly 291,000 homes received at least one foreclosure-related notice last month, up 6 percent from January, according to the Irvine, Calif-based company. While foreclosures are highly concentrated in the Western states and Florida, the problem is spreading to states like Idaho, Illinois and Oregon as the U.S. economy worsens.

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The rise in foreclosure filings came despite temporary halts to foreclosures by Fannie Mae and Freddie Mac, and major banks JPMorgan Chase, Morgan Stanley, Citigroup and Bank of America.

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While the number of foreclosures continue to soar nationwide, banks have held off listing properties for sale. There were around 700,000 such properties nationwide at the end of last year, making up a “shadow inventory” of unsold homes that could drag the housing crisis out even longer.

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Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread. Nearly 12 percent of all Americans with a mortgage — a record 5.4 million homeowners — were at least one month late or in foreclosure at the end of last year, according to the Mortgage Bankers Association. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

The RealtyTrac report said more than 74,000 properties were repossessed by lenders in February as the worst recession in decades, falling home values and stricter lending standards continue to sap the U.S. real estate market.

Nevada, Arizona, California and Florida had the nation’s top foreclosure rates. In Nevada, one in every 70 homes received a foreclosure filing, while the number was one every 147 in Arizona. Rounding out the top 10 were Idaho, Michigan, Illinois, Georgia, Oregon and Ohio.

Among metro areas, Las Vegas was first, with one in every 60 housing units receiving a foreclosure filing. It was followed by the Cape Coral-Fort Myers area in Florida and five California metropolitan areas: Stockton, Modesto, Merced, Riverside-San Bernardino and Bakersfield.

With foreclosures increasing, home builders are not going to see a turnaround anytime soon. Infact some of them might not survive this downturn. Beazer Homes is one such candidate. As shown from the bar chart, all home builder stocks have dropped between 25% to 95% in the last 9 months.  I expect them to keep going lower.