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Friday, March 27, 2009
Toyota: Reluctant savior of faltering U.S. carmakers?
Everyone loses if Chrysler and GM are allowed to go under
Ever since U.S. auto giants General Motors Corp. and Chrysler LLC began contemplating bankruptcy last year, industry specialists have been asking one question: Will Toyota rescue them?
As Tuesday's deadline for President Barack Obama's auto task force to commit additional loans to the ailing automakers approaches, there is stubborn speculation Toyota Motor Corp., now the world's No. 1 automaker, may lend a helping hand to its rivals as concerns grow about the health of the critical U.S. market.
The futures of GM and Chrysler are not yet clear. Both must submit restructuring plans to prove their viability to the federal government by the end of this month to get more loans.
Analysts say Toyota may end up extending some kind of help to GM and Chrysler to avoid the repercussions of their possible failures on U.S. auto sales, parts makers and trade policy.
For Toyota and the other Japanese carmakers, the U.S. market is their biggest moneymaker. They fear the collapse of any of the U.S. auto icons will deal a further blow to U.S. auto sales. The auto and related industries are a major source of jobs and a prime contributor to U.S. economic growth.
"Our biggest concern is a further cooling of the U.S. market," said one Japanese auto executive, who requested anonymity.
Analysts also warn that a U.S. auto failure will cause sales at Japanese auto parts makers to plunge.
While only 4 percent of major parts maker Denso Corp.'s overall sales came from GM in the first half of the business year ending Tuesday, smaller parts makers are more dependent on the U.S. giant.
Yorozu Corp., a maker of suspensions, gets about 18 percent of its sales from GM. Akebono Brake Industry Co. gets 12 percent, said Toru Iwai, an analyst who follows parts makers at Credit Suisse in Japan.
A GM or Chrysler bankruptcy could also trigger failures at their parts-making affiliates. This would cause so much trouble that even the major Japanese automakers would have trouble procuring parts, with the worst-case scenario being suspension of production.
Japan's auto industry experienced similar trouble when a magnitude-6.8 earthquake struck Niigata Prefecture in July 2007, halting piston-ring maker Riken Corp.'s plant in Kashiwazaki. The trouble at Riken forced major automakers to idle some of their factories due to a lack of parts.
Analysts have said Japanese carmakers must hedge their bets by procuring each part from more than two different parts makers, but it is difficult to do that with each of the 30,000 to 60,000 parts needed to build a vehicle.
The question now is: How much more can Toyota do to shore up GM's finances?
In 2005, Toyota bought an 8.7 percent stake in Fuji Heavy Industries, maker of the Subaru brand, when GM sold off its 20 percent stake. Toyota later increased that stake to 17 percent when Fuji Heavy conducted a third-party share allocation last year.
In 2006, Toyota bought 5.9 percent of Isuzu Motors after GM dumped its stake the same year.
Yasuo Tsuchiya, a visiting professor at Meiji University who specializes in global management and industrial globalization, said aggressive steps, such as a capital tieup, joint venture or technology offer, are unlikely because Toyota has no incentive to do so.
Toyota itself appears cool to the idea of financing struggling U.S. automakers.
"Merely providing financing won't solve anything. We need to do something that can stimulate the overall market," one Toyota executive said on condition of anonymity. He did not elaborate.
Osamu Kobayashi, an analyst at Standard and Poor's in Japan, said, "Any support (by Toyota) would not be economically rational in the current business environment."
Kobayashi said Toyota will not want to acquire new plants because it wants to minimize inventories amid the ongoing plunge in global car sales, so the chance of it buying such assets from GM or Chrysler is also slim.
The Toyota group is in the middle of its own cost-cutting efforts after announcing Feb. 6 that it expects a ¥450 billion operating loss and a ¥350 billion net loss for the year ending March 31, which would be its biggest losses since its establishment in 1937.
The relatively high labor and medical costs plaguing the U.S. automakers would also be a heavy burden on Toyota if it were to acquire their plants. According to The Wall Street Journal, GM's labor and medical costs average $81.18 per hour per worker, compared with $47 per hour at Toyota's North American plants as of 2006.
Thus, any step by Toyota to support its ailing U.S. rivals is likely to be a very limited one.
One possibility would be to purchase the rest of the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, Calif., since Toyota already owns half the stake, said Tsuchiya of Meiji University. NUMMI, which produces the Corolla, was jointly set up with GM in 1984.
Jointly developing completely new technology for next-generation vehicles, such as fuel-cell vehicles and electric cars, is another area Toyota might be considering, Tsuchiya said.
Experts say that if any of the big U.S. automakers go bankrupt, the government might move to protect the U.S. market and impose tariffs on Japanese cars. Also, U.S. consumers may boycott Japanese cars and shun foreign brands amid the crisis, they said.
"Toyota has always been sensitive to any trade friction with the United States or any movement to boycott Japanese cars," Tsuchiya said. "Because of those concerns, it is possible for Toyota to consider taking some steps to support them."
But that would probably only occur at the request of the U.S. government, he said, because Toyota doesn't have enough motivation to actually entertain such aggressive steps.
"The question is whether such a request will really come," he said.