Automakers fear domino effect from GM, Chrysler failure

Sorry, more doomsday BS.

Honda executives tell Trade Minister fallout from financial woes could hurt supply chain

Bruce Campion-Smith Ottawa bureau chief

OTTAWA–The collapse of North American auto giants General Motors and Chrysler could drag down other automakers, International Trade Minister Stockwell Day warns.

Day had met executives from Honda during a trade mission to Japan and reported yesterday they shared his concerns about the potential domino effect from the fallout of the sector's financial woes.

"The supply chain in North America really serves all of the automakers and if the main company goes down, it will pull supply chains down with it. That will affect other automakers whose position might not be so precarious," Day said yesterday in a conference call from Nagoya, Japan.

"If – again, underlining the `if' – if there started to be failure, that would affect all auto companies," Day said. "It's important that the industry survives, because what hurts one could hurt the other."

Ottawa and Queen's Park have said interim loans of $3 billion for GM of Canada Ltd. and $1 billion for Chrysler Canada will be advanced to assist the companies with their restructuring plans.

Honda has survived the recession better than most but even it has been facing "worldwide challenges," Day said. "This is one of the most difficult times Honda has faced.... They're doing their best to stay efficient," he said.

"Companies like Honda are ... relatively well capitalized and can ride out a storm for a while."
Earlier this week, federal Industry Minister Tony Clement prepared Canadians for the possible bankruptcy of GM or Chrysler.

"There used to be a phrase in the auto sector, `too big to fail,'" Clement said. "I don't think that phrase exists anymore."

Source;
http://www.thestar.com/Business/article/616625

What happens if an automaker goes bankrupt?

A: Under a Chapter 11 reorganization, a manufacturer's normal operations would probably continue. It would still be building cars and providing service, so car owners might not have problems getting warranty repairs, parts, and service.

In a Chapter 7 liquidation, the company would effectively cease to exist and car owners would largely be on their own. The company would still have to address safety recalls. It's possible that if another automaker buys a defunct brand, it would continue to support owners.

Perhaps more likely is an automaker's jettisoning a division, as GM did with Oldsmobile in 2004 and Chrysler did with Plymouth in 2001. Support for owners of those makes has continued through other GM and Chrysler dealerships. But the resale values of the vehicles plummeted, as would probably happen with a Chapter 11 bankruptcy.

If resale value is a concern, avoid buying a make that might be phased out. If you plan to keep the car for a long time, depreciation is less of a factor, and buying from a brand going out of business could make it easier to find a good deal. For more information on which automakers are best, see "Who makes the best cars?"

Source;
http://blogs.consumerreports.org/cars/2009/02/what-happens-if-an-automaker-goes-bankrupt-.html