Chrysler Chapter 11 threatens Nissan vehicle supply deal

by Naoko Fujimura and Tetsuya Komatsu

Bloomberg

Nissan Motor Co. will review its vehicle supply agreement with Chrysler LLC following the U.S. company’s bankruptcy filing.

Nissan, Japan’s third-largest automaker, is examining the terms of an agreement struck in 2008 to make small cars for Chrysler for sale in the United States in exchange for Chrysler-made pickup trucks, Nissan spokesman Yuichi Nakagawa said Friday.

Nissan’s plan to supply its Versa compact to Chrysler later this year for sale in Latin America is not currently under review, Nakagawa said.

The review comes after Chrysler began Chapter 11 bankruptcy procedures Thursday designed to revive its business by slashing debt and using small-car technology from Fiat SpA. The merger would create the world’s sixth-largest car manufacturer.

“Nissan has no other choice, as Chrysler has a new partner,” said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co., which manages $5.5 billion in Japanese equities. “The process by the government is all aimed to allow Chrysler to merge with Fiat smoothly.”

Tokyo-based Nissan said in February that it was evaluating the “financial objectives” of its Chrysler deal after slashing production and announcing 20,000 job cuts to cope with plunging vehicle demand.

The two firms agreed in April to supply each other with models to broaden the number of vehicles each offered without incurring development costs. Chrysler agreed to make pickups for Nissan at its factory in Saltillo, Mexico, in 2011. Nissan planned to build the car in Japan for sale by Chrysler in North America starting in 2010.

Chrysler will also lose Mitsubishi Motors Corp. as a customer. Tokyo-based MMC will discontinue buying the Raider pickup truck from Chrysler after the 2010 model, as demand for the category declined, President Osamu Masuko said in Tokyo on April 27.

Honda Motor Co., Japan’s second-largest automaker, expects Chrysler’s bankruptcy to have little effect on the company, Executive Vice President Koichi Kondo said April 28. Tokyo-based Honda has been eyeing various steps since last year on dealing with possible bankruptcies by Detroit-based automakers.

Domestic sales tumble

Kyodo News

Domestic sales of new vehicles fell 28.6 percent in April from a year earlier to 166,365 units, the lowest monthly level on record as auto demand continues to plunge, an industry body said Friday.

The figure marked the worst monthly level since the Japan Automobile Dealers Association began compiling data in 1968, when sales stood at 189,360 units. It was also the second-largest drop in April since 1974, when vehicle sales were hit hard by the first oil crisis.

Domestic sales of cars, buses and trucks, excluding minivehicles with engines of up to 660cc, tumbled for the ninth month in a row as the recession weakened consumer sentiment.

“Tough conditions are continuing into the new business year and the level of severity is increasing,” Takeshi Fushimi, the association’s director, told reporters in Tokyo.

But Honda Motor Co. bucked the downward trend, selling 32,387 units, up 4.0 percent from a year earlier for its first increase in six months, amid robust orders for its new Insight hybrid.