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

'Detroit meltdown' worries Toyota, Honda

Nicolas Van Praet And Alia McMullen,
Financial Post Published: Thursday, November 13, 2008

Japanese automakers Toyota Motor Corp. and Honda MotorCo. say they are "very concerned" about the potential failure of Detroit's three car companies as analysts warn a bankruptcy would throw the entire auto supply base into chaos and rattle the operations of even the most profitable manufacturers.

The comments came as Canada's Finance Minister, Jim Flaherty, yesterday said some residents in his Ontario riding of Whitby-Oshawa, home to the Canadian headquarters and main assembly factories of General Motors Corp., don't want the government to hand GM and other Detroit automakers a bailout.

"We're very concerned" about a Detroit meltdown, said Mike Goss, spokesman for Toyota Motor Engineering &Manufacturing North America Inc. "In the past couple of days I've been asked 'Wouldn't it be great for Toyota if others fail?' We think the opposite is true."

The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC, Mr. Goss said.

The Japanese automakers are working to identify which suppliers have the biggest exposure to the Detroit firms.

They are also developing emergency plans in the event they need to replace a company providing them with parts. "Everything's on the table about what we might have to do," Mr. Goss said.

Should one or more of the Detroit three go bankrupt next year, all U. S. automotive operations, including those of the so-called new domestic manufacturers like Honda and Nissan MotorCo., will be paralyzed for at least one year because of the high likelihood many suppliers will run out of money, according to an analysis by the Center for Automotive Research, a think-tank based in Michigan.

"We expect a major wave in supplier bankruptcies or a 'supplier shock,' " the analysis said.

North America's roughly 6,000 auto suppliers are already under severe pressure from a collapse in U. S. sales of cars and trucks to 25-year lows, which has forced the Detroit automakers to cut output in the face of lower demand. Ford MotorCo. said yesterday it will temporarily shut down nine of its plants continent-wide this quarter as it builds 211,000 fewer vehicles than a year earlier, including Ontario assembly factories in Oakville and St. Thomas.

We're very concerned" about maintaining the stability of the supply base, said Edward Miller, spokesman for American Honda Motor Co. "Obviously this is very disruptive."

Mr. Flaherty said he expects U. S. lawmakers to craft a proposal for a rescue of the U. S. auto industry after GM warned last week it may not have enough cash to fund operations past this year amid a credit crisis. Discussions so far have centred around a bridge-loan package worth US$25-billion, in addition to US$25-billion worth of separate loans already approved to help the Big Three build more fuel-efficient vehicles.

"Economically, GM may prove too big to ignore simply because of the implications for not just employees, but also retirees and all the supplier companies if it was to collapse," said Nigel Gault, chief U. S. economist for IHS Global Insight Inc., an economic-analysis firm

Investors bet yesterday a bailout would go ahead, pushing up shares of GM by as much as 23% and Ford shares by as much as 11%.

Many Canadians say the federal government should do something to help the auto sector, Mr. Flaherty acknowledged at an economic conference in Toronto. "[But] there are lots of people that say, 'Don't do anything. Don't use my tax money to bail out an enterprise that may not survive.' " He added the views are not coming from rich constituents but "people on the street."

Mr. Flaherty said any aid Canada would offer would be for "transformational" support. "If we are going to do something, [we need] to find a way to ensure the sustain-ability, survivability, a product mix that is going to have profit here in Canada."

Henry Paulson, the U. S. Treasury Secretary, said yesterday automakers are a key part of the United States' manufacturing base but that any effort by government to rescue them "has got to be one that leads to viability."

Mr. Paulson is resisting pressure by Democratic lawmakers in the United States to use the US$700-billion Troubled Asset Relief Program, a bailout fund aimed at banks, to help Detroit.

Source;
http://www.financialpost.com/story.html?id=954380