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U.S. auto industry problems spell trouble for Japan as well

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If true, Japan Automobile &/or J-Govt should join hands with USA and bailout Big3, that will offer best example of B2B !

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I am sick of hearing everyone bang on about bailing out the big 3!! If their complete incompetence has dragged them into the gutter, then so be it. Try building something decent that might actually sell, rather than the lumps of metal that have been pouring out of Detroit over the last few decades.

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some14some: There's a serious hint into the roll they played. Go through my previous posts - even as 111774, and you'll see that I've been saying that the Big 3 have been crippled by the financial reports generated by the Japanese makers, reports that border on securities fraud. How can Toyota cite an 80% drop in profits on 30% drop in sales?

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unscrejects: Because they have huge fixed costs.

I think GM etc going bankrupt will hurt Toyota and the others in the short term but long term they'll be laughing all the way to the bank. No US car companies = profits, profits, profits!

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The problem with the American auto industry is the the management-UAW relationship. I am not blaming one or the other, but a company that agrees to, and a group that makes, outrageous conditions of "If a plant is closed then you must pay the laid off workers 90% of their wages" (for some time period that I have forgotten). That constraint alone made it physically impossible for the Big3 to be flexible causing this huge "push economics" where you see dealers with 100s of cars over stock, mainly because the difference between making a car and paying a laid off worker is small, they had them just keep pumping out cars even though they weren't selling.

If a bailout doesnt include the ability to completely renegotiate UAW contracts then I dont expect them to come out alive from any situation.

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I tend to agree with Tatsumaru in the medium to long run, but IMO issuing an ultimatum for the UAW to agree to slash pay and benefits of its hundreds of thousands of members within a few days is unrealistic. The original plan was for the $14 billion to be an emergency bailout until the Big 3 presented a more comprehensive recovery plan in March. I don't really see why Congress couldn't impose the same deadline on the UAW and let the plan move forward for now, unless this really is just about union-busting.

Both sides have it wrong, the anti-UAW politicians shouldn't hit the kill switch on the US auto industry just to stick to unions, and the UAW should not get all of their members permanently laid off as a matter of abstract labor organization principles. Both sides are showing a remarkable lack of vision.

I do have to say that the union-friendly liberal media (and it pains me to say that as I am a liberal and generally wince at liberal media-bashing) who decry how Congress bails out Wall Street but not Detroit are off base. For the past two decades GM and Ford have been consistently losing money on the auto side, but have kept afloat by issuing debt and selling auto leases, loans and other credit transactions and by selling cars to rental car agencies which they also happen to own. Chrysler is owned by Cerberus, which is just a giant hedge fund. The Big 3 have been nothing more than unprofitable storefronts for credit transactions which means Wall Street has been subsidizing auto workers for years, not the other way around. If anything the Big Three have been playing this shell game in order to deal with the high overhead presented by unionized labor, and that has contributed to making them the unwieldy, unhealthy businesses that they are today.

Anyway, it doesn't matter if the UAW is right or wrong as a matter of principle, current economic conditions simply will not sustain its demands.

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Do you REALLY think Japanese automakers will fill the void created by a collapse of the U.S. "Big 3"?

GO to wikipedia, look up automakers.. and look at all of that red. China will ramp up production much faster than Japan could. Heck, Walmart and Sam's Club will probably start selling chinese cars.

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"and any additional negative is sure to make things worse.”

Huh? Your major rivals going bankrupt at a time of falling demand is a BAD thing?

Very diplomatic

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@ Telecast

I think the only way we will see Chinese brands of cars in the US is if they construct them here. The Japanese found that out the hard way, but are benefiting from moving construction here for the most part. And this would take lots of time at best. With that said, the American is looking towards "eco-friendly" as well as cheap. But either way, most Americans are not in a position to buy a new car, let alone a used one as sales have already proved this.

I also believe that the Japanese are over exaggerating the wrong problem if the Big 3 collapsed. It isnt that the suppliers would only collapse too, but if the Big 3 collapse their cars would sell for pennies on the dollars since warranties will no longer be valid (as warranties come from the company and not the dealership), lack of parts on the market, etc. Causing the Japanese makers be in even more hurt (in the short run) since everyone will have new, but semi-unrepairable - while parts supplies last, American cars.

However, in the long run, the Japanese automaker have only things to benefit from the collapse of the Big 3.

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Couple of points where I think Tatsumaru is off base. If the Big 3 did go down and warranties become invalid, there are plenty of insurance companies out there to fill the gap selling used car warranties to owners wanting to hedge their risk. Lack of parts again would be only a short term issue as most parts (panels and electronics for new cars excepted) are available from pattern parts makers and new parts can be copied very quickly. Some business for Chines factories there I think.

As for Japanese car makers. Those that produce vehicles in the US would not need to fill the gap instantly as the economic fall-out from any Big 3 collapse would further hit new car sales. They could ramp up fairly gradually and import those parts not available in the US until supplies are restored. Import limit regs can be bent.

As for Chinese makers jumping in. Not in the short to medium term. Their cars are even worse than the Big 3s.

Having said that, it would be a massive loss of face for the US government to allow GM or even Ford to go down. Even though collapse has been well earned, you have to know some cash will be forthcoming. Cant see Chrysler surviving in its current form though.

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Expect difficulty in Japan in 2009 due to poor auto sales. Many are already losing their jobs - and the ones that are left may need to lower salaries. =This is also a good time to support Japanese industry by buying a car if you have the means.

There is a rate at which you are profitable. -Right now I believe all the bigs are behind that rate plus the incentives are a cost. =the are in the red.

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...if the Big 3 did go down and [their] warranties become invalid...

Not so fast. I'm calling BS on that comment. For the sake of argument, if any of the Big Three car companies did go into bankruptcy, could they void their warranties? Legally, yes they could. But would they do so? Common and economic sense would dictate not. To do so, would be committing marketplace suicide - and that's the very last thing any of the auto companies need to do at a time like this. The auto companies would honor their warranties in a set aside pool of funds that would be established in a bankruptcy filing. Also, people who purchased extended warranties wouldn't be impacted at all - because those warranties are not issued from the Big Three - they are issued from private insurance companies.

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Instead of bailing out the big3, wouldn't it be wiser for the US administration to just let them go into bankruptcy and if that happens bail out the suppliers? I'm sure the big3 won't disappear and investors will be found who will be able to save the more profitable parts, laying the foundation for a smaller, but stronger US auto industry?

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*Wow didn't I state this very issue to some of the bankruptcy cheerleaders on here. If one or more of the big three fail many parts suppliers will as well given that are actually weaker than the automakers themselves right now. Visteon who was formerly part of Ford supplies Renault/Nissan, Mazda, Honda and Toyota for example as well as Gm, Ford and Chrysler. When the supply chain is interuppted Japanese owned plants will be forced to either shutdown or at worst close. The forecast is for a loss of up to 4.5 million jobs if the auto industry fails. The government had no problem giving $700 billion to the a&holes in the banking sector and yet don't evn want to extend $14 billion in LOANS** to the auto industry. The whole thing boils down to the Republicans licking their chops at the thought of finally being able to destroy the unions. The two tiered society in America is well on its way and this crisis just shows where priorities lay.

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the sentence in my post above should read "shutdown or at worst close permanently"

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Weasel-If any company becomes bankrupct, it is the big debtors that get paid first. Ther's usually nothing left to pay the small fry, ie warranty holders. I agree it would be nice for a bankrupt waratany fund to be set up, but unrealistic. Lets face it, if a manufacturer has gone what do they care about reputation?

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