The Obama administration pledged up to $5 billion on Thursday to aid stressed auto suppliers crucial to the survival of U.S. car manufacturers.

Treasury Department financing from a program that bailed out General Motors Corp and Chrysler LLC in December will flow through auto companies that want to participate. It is designed to maintain a reliable network of parts to auto companies and ensure that suppliers get paid.

The shares of suppliers and GM rose sharply on the development, which was the first test of an administration task force overseeing industry restructuring, especially at GM and Chrysler.

The Dow Jones automobiles and parts index was up more than 4 percent. Lear Corp shares more than doubled, while American Axle & Manufacturing Holdings Inc surged 48 percent. GM gained 9.5 percent.

The Supplier Support Program will stabilize a critical component of the American auto industry during the difficult period of restructuring that lies ahead, Treasury Secretary Timothy Geithner said in a statement.

Bob McKenna, the supply industry's top lobbyist as president of the Motor and Equipment Manufacturers Association, said the move signaled the government would not let the U.S. auto industry collapse.

I'm sure there will be more coming out on GM and Chrysler in the next couple of days, McKenna said.

The government is also considering a request for up to $22 billion in additional aid for GM and Chrysler if they can prove viability. The two received a $17.4 billion bailout in December.

Suppliers had requested up to $25.5 billion in emergency funding, saying two-thirds of some 5,000 companies face financial distress due to the drastic cutback in production that accelerated in the early weeks of 2009.

Major suppliers, including Lear and American Axle received warnings this month from auditors about their ability to continue as a going concern, while Visteon Corp has warned it was in danger of breaching its debt covenants.

Lear said on Tuesday it may be required to file for bankruptcy protection, despite winning an agreement with lenders that gives it until May 15 to restructure its debt- heavy balance sheet.

Suppliers receive payment 45 days to 60 days after delivering parts and analysts have warned of a wave of failures in March and April, when the near-total shutdown in U.S. auto production at the beginning of the year starts to hit balance sheets.

U.S. auto sales tumbled almost 39 percent through the first two months of 2009 to their lowest levels in 27 years.

Payments to suppliers from Detroit automakers are expected to fall to $2.4 billion in March, compared with $8.7 billion in December, according to McKenna's group.

Domestic automakers that choose to participate will act as gatekeepers for the $5 billion supplier aid fund, which will be administered through a bank that has not yet been named.

Under the program, suppliers will have to pay a fee to participate. Companies can opt to pay 2 percent to secure a government-guarantee of funds they are owed by automakers.

Such receivables are typically paid out in 45 days or more and industry executives have said the government guarantee would allow cash-strapped suppliers easier access to bank lending that dried up last year amid deepening concern about the viability of the U.S. automakers.

For a higher payment of 3 percent of the amount due, suppliers can opt to be paid immediately from the $5 billion fund, according to people who have been briefed on the program.

(Reporting by David Lawder and John Crawley in Washington and Soyoung Kim and Kevin Krolicki in Detroit; editing by Gary Crosse and Andre Grenon)

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