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Friday, 5 December 2008
Asian Carmakers Don’t Want Big 3 to Fail
The top automakers in Asia would not welcome the collapse of one or even all of their three big Detroit rivals, though those who follow the industry expect the likes of Toyota, Honda and Hyundai to gain market share in the long term.
TOKYO: The top automakers in Asia would not welcome the collapse of one or even all of their three big Detroit rivals, though those who follow the industry expect the likes of Toyota, Honda and Hyundai to gain market share in the long term.
The immediate carnage from a bankruptcy of General Motors, Ford Motor or Chrysler would spread throughout an industry that is bleeding cash in a global slowdown, auto executives and analysts say.
“If all the Big Three were to fail, the consequences of that are beyond imagination,” the chief executive of Suzuki Motor, Osamu Suzuki, warned last week. “I think it would upset the very foundation of the U.S. economy.”
GM, Ford and Chrysler urged Congress this week to authorize $34 billion in loans, saying they would restructure as well as cut models, jobs and executive pay to remain viable.
The Suzuki chief’s peers agree, perhaps reluctantly, that a multibillion-dollar U.S. bailout is inevitable.
“From a business standpoint it would be unfair,” said Koichi Kondo, the executive vice president at Honda. “But if the Big Three filed for Chapter 11, that would hurt us badly.”
A filing for bankruptcy protection has the potential to disrupt every aspect of the automaking industry.
Dealers selling cars for multiple brands would go under; if all the Big Three lost their U.S. operations, nearly three million jobs would be lost in the first year, the U.S.-based Center of Automotive Research estimates, devastating already frail consumer confidence.
GM’s failure alone would mean that the more than $200 billion in interest-bearing debt at the carmaker and its GMAC financing arm could be worthless for countless retirees and taxpayers, further upsetting consumption patterns.
But perhaps the most damaging scenario would be the cascading effect on a complex web of a multitiered supply chain, analysts say.
“The exact consequences are difficult to model, but simplistically, we’d assume the financial impact on suppliers would force many into Chapter 11,” Max Warburton of Bernstein Research wrote in a report, “and for a period of time they would be unable to produce components for non-Detroit companies.”
Deutsche Securities analyst Kurt Sanger said that would leave a few main options, none of them desirable, for Toyota, Honda and Nissan: speed up payments to suppliers to help with liquidity; switch to backup suppliers, at a cost; or buy suppliers’ tooling to continue production.
“The reality is that such a scenario would likely result in a combination of these options,” Sanger said.
Japanese brands account for 40 percent of new vehicles sold in the United States, the world’s biggest car market, while the Big Three sell just less than half. Japanese automakers produce more than 60 percent of their cars for the U.S. market in North America.
“If you’re missing even one component, you can’t build a car,” said Kondo of Honda, noting that parts makers provided 80 percent of a car’s components.
Even in an average year, he said, about 10 suppliers fail, making the case for dual sourcing, or obtaining a part from more than one supplier, even if that reduces economies of scale.
Automakers helping their suppliers is nothing new.
Even as they sold assets and pleaded for a government bailout themselves, GM, Ford and Chrysler recently loaned a combined $60 million to Metaldyne, a maker of metal-based components, because the alternative of letting the Michigan-based supplier fail would have meant certain car models would not be built.
“In the current environment, automakers have to look after all the suppliers, such as Visteon, Delphi and Dana,” said Shoichiro Irimajiri, co-chairman at Asahi Tec Corp., the Japanese parts maker that owns Metaldyne.
“But the money is not going to come from shareholders. So ultimately it ends up coming from assemblers who can’t afford to stop their lines,” Irimajiri said, “which is why Japanese carmakers have been coming to me for reassurance that our finances are O.K.”
Analysts estimate that as many as 90 percent of U.S. auto suppliers supply multiple customers, meaning a shutdown would carry the risk of disrupting production at European and Korean automakers like Volkswagen, BMW, Daimler and Hyundai, all of which build cars in North America.
So, what would be an ideal scenario for Japanese carmakers?
“In a nutshell, a soft landing, or government bailout, would be better than a hard landing,” said Tatsuo Yoshida, an analyst with UBS Securities.
“At the end of the day, Japanese, European and Korean carmakers are going to eat away at the Big Three’s market share, whether that takes three years or five years,” Yoshida said. “A soft landing would make the path to that a much smoother one.” Honda sees soft U.S. market
Honda Motor expects the U.S. car market to fall by 5 percent next year, and it said it could cut output further in the latest sign that deepening economic troubles have made sales forecasts difficult, Reuters reported Thursday from Tokyo.
“Conditions are changing by the day, and it’s difficult to see when the U.S. market will recover,” Kondo, the Honda executive vice president, said at a news conference in Tokyo.
“But it seems this is about the bottom for the U.S. market,” he said, adding that Honda was assuming automakers would sell 12.5 million to 12.6 million vehicles in the United States next year. That would be down from 13.2 million to 13.3 million in 2008, and more than 16 million last year.
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Asian Carmakers Don’t Want Big 3 to Fail
By Chang-Ran Kim, Reuters
4 December 2008
TOKYO: The top automakers in Asia would not welcome the collapse of one or even all of their three big Detroit rivals, though those who follow the industry expect the likes of Toyota, Honda and Hyundai to gain market share in the long term.
The immediate carnage from a bankruptcy of General Motors, Ford Motor or Chrysler would spread throughout an industry that is bleeding cash in a global slowdown, auto executives and analysts say.
“If all the Big Three were to fail, the consequences of that are beyond imagination,” the chief executive of Suzuki Motor, Osamu Suzuki, warned last week. “I think it would upset the very foundation of the U.S. economy.”
GM, Ford and Chrysler urged Congress this week to authorize $34 billion in loans, saying they would restructure as well as cut models, jobs and executive pay to remain viable.
The Suzuki chief’s peers agree, perhaps reluctantly, that a multibillion-dollar U.S. bailout is inevitable.
“From a business standpoint it would be unfair,” said Koichi Kondo, the executive vice president at Honda. “But if the Big Three filed for Chapter 11, that would hurt us badly.”
A filing for bankruptcy protection has the potential to disrupt every aspect of the automaking industry.
Dealers selling cars for multiple brands would go under; if all the Big Three lost their U.S. operations, nearly three million jobs would be lost in the first year, the U.S.-based Center of Automotive Research estimates, devastating already frail consumer confidence.
GM’s failure alone would mean that the more than $200 billion in interest-bearing debt at the carmaker and its GMAC financing arm could be worthless for countless retirees and taxpayers, further upsetting consumption patterns.
But perhaps the most damaging scenario would be the cascading effect on a complex web of a multitiered supply chain, analysts say.
“The exact consequences are difficult to model, but simplistically, we’d assume the financial impact on suppliers would force many into Chapter 11,” Max Warburton of Bernstein Research wrote in a report, “and for a period of time they would be unable to produce components for non-Detroit companies.”
Deutsche Securities analyst Kurt Sanger said that would leave a few main options, none of them desirable, for Toyota, Honda and Nissan: speed up payments to suppliers to help with liquidity; switch to backup suppliers, at a cost; or buy suppliers’ tooling to continue production.
“The reality is that such a scenario would likely result in a combination of these options,” Sanger said.
Japanese brands account for 40 percent of new vehicles sold in the United States, the world’s biggest car market, while the Big Three sell just less than half. Japanese automakers produce more than 60 percent of their cars for the U.S. market in North America.
“If you’re missing even one component, you can’t build a car,” said Kondo of Honda, noting that parts makers provided 80 percent of a car’s components.
Even in an average year, he said, about 10 suppliers fail, making the case for dual sourcing, or obtaining a part from more than one supplier, even if that reduces economies of scale.
Automakers helping their suppliers is nothing new.
Even as they sold assets and pleaded for a government bailout themselves, GM, Ford and Chrysler recently loaned a combined $60 million to Metaldyne, a maker of metal-based components, because the alternative of letting the Michigan-based supplier fail would have meant certain car models would not be built.
“In the current environment, automakers have to look after all the suppliers, such as Visteon, Delphi and Dana,” said Shoichiro Irimajiri, co-chairman at Asahi Tec Corp., the Japanese parts maker that owns Metaldyne.
“But the money is not going to come from shareholders. So ultimately it ends up coming from assemblers who can’t afford to stop their lines,” Irimajiri said, “which is why Japanese carmakers have been coming to me for reassurance that our finances are O.K.”
Analysts estimate that as many as 90 percent of U.S. auto suppliers supply multiple customers, meaning a shutdown would carry the risk of disrupting production at European and Korean automakers like Volkswagen, BMW, Daimler and Hyundai, all of which build cars in North America.
So, what would be an ideal scenario for Japanese carmakers?
“In a nutshell, a soft landing, or government bailout, would be better than a hard landing,” said Tatsuo Yoshida, an analyst with UBS Securities.
“At the end of the day, Japanese, European and Korean carmakers are going to eat away at the Big Three’s market share, whether that takes three years or five years,” Yoshida said. “A soft landing would make the path to that a much smoother one.”
Honda sees soft U.S. market
Honda Motor expects the U.S. car market to fall by 5 percent next year, and it said it could cut output further in the latest sign that deepening economic troubles have made sales forecasts difficult, Reuters reported Thursday from Tokyo.
“Conditions are changing by the day, and it’s difficult to see when the U.S. market will recover,” Kondo, the Honda executive vice president, said at a news conference in Tokyo.
“But it seems this is about the bottom for the U.S. market,” he said, adding that Honda was assuming automakers would sell 12.5 million to 12.6 million vehicles in the United States next year. That would be down from 13.2 million to 13.3 million in 2008, and more than 16 million last year.
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