The government has helped bail out Chrysler. The government has not bailed out its suppliers. And now Chrysler is looking to get back in the game on the backs of its suppliers, who, if they are still in business, are not eager become lenders to their customers. Chrysler has received over $10.4B from the government so far. And now it is asking its suppliers to develop and make new parts for Chrysler’s new, smaller cars that it is planning to build under its Fiat management. But there’s a catch. Chrysler is asking suppliers to take much of the risk. Basically, suppliers need to spend their own cash to develop and make the new parts, but in a change of Chrysler’s (and the other big automakers’) policy, the suppliers will not be offered the usual production volume guarantees. Production volume guarantees ensure that the supplier is allowed to get more money for a particular part if the agreed-upon production volume is not reached. This policy helps mitigate the risk for the supplier, particulary important when producing new parts for a customer.

Some people might wonder why Chrysler doesn’t just go out and find other suppliers if current suppliers will not meet these terms. Certainly the worldwide downturn in auto sales has left suppliers hungering for new business. Not so easy. Automotive suppliers have been financially battered and many have gone out of business during the downturn. Funding a customer’s new models may simply not be financially feasible for most suppliers. So it’s not like there are lots of suppliers waiting in the wings who are able to invest in their now less than financially-stable customers.

And there’s the issue of switching costs. For many key parts, it’s not that easy to find and qualify a new suppliers. And switching to new suppliers is certainly both costly and in some cases risky. After all, these days, autos are just the sum of their parts. Automakers don’t make the parts for cars. They just assemble supplier parts to make cars. Supply risk has never been higher for potential quality problems, safety problems and part recalls.

Something is going to have to give. And it’s doubtful that the giving is going to come from Chrysler’s suppliers. The challenges are more than just financing new part production. The breach of trust that has occured in this industry between suppliers and their customers may be the biggest challenge going forward. Even if they are able, will suppliers bet on the same customers who treated them as adversaries in the past and squeezed out cost on their backs, while at the same time, not always reducing the cost structure of their own businesses?

My guess is that Chrysler will have to offer its suppliers some incentives to take the risk of producing new parts. Otherwise, it will find itself unable reinvent itself as a company and its decline will continue.