European parts suppliers lose their credit insurance

The crisis at Ford and GM deepened today, with news that insurers have pulled credit cover from their suppliers.

Atradius, Coface and Euler Hermes, which control more than three-quarters of the world's credit insurance, withdrew policies that protect European suppliers if the car makers fail to pay their debts.

Insurers, who profit from selling every insurance policy, typically make this move as a last resort, because they believe that there is a significant likelihood of the company not honouring its debts.

Withdrawal of credit insurance is often the final straw as an ailing company tries to maintain its production cycle.

Either the current suppliers can trade without insurance, as they do in the US, or they can insist on up-front payment.

A government bail-out for the Detroit makers is still a long way off, as there is not enough Republican support for the move.

Senior Republican Richard Shelby summarised the party's view: “The financial situation facing the Big Three is not a national problem, but their problem.”

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