Fallout to hit Japan, parts makers acutely

by Hiroko Nakata

General Motors Corp.’s filing for bankruptcy protection Monday will have a wide impact on Japan’s economy, ranging from further reduced U.S. consumption and car sales to fallout hitting the nation’s parts makers, experts said.

The largest industrial bankruptcy in U.S. history is expected to push down U.S. gross domestic product by 0.03 percentage point because it will idle around 114,000 GM assembly workers and dealership employees, putting a further damper on household spending, said Takahide Kiuchi, chief economist at Nomura Securities Co.

The weaker consumption in turn will push down Japan’s GDP by about 0.02 point through a fall in sales of Japanese cars, he said.

“Also, the U.S. government’s mounting deficit may lead to a lower dollar (against the yen),” he said, and this will hit Japanese carmakers’ profits.

But Kiuchi said the more immediate impact will be on Japanese auto parts makers, not the overall economy or the automakers.

“Parts makers are expected to suffer most, due to possible defaults as well as reductions in their sales,” said Yuji Masaki, manager of information reporting at Teikoku Databank Ltd.

The private credit research firm said last week that 102 Japanese parts suppliers and other companies face potential failure to recover accounts receivable from GM now that it has filed for Chapter 11.

Major Japanese car parts makers, including air conditioner and navigation system maker Denso Corp., suspension parts maker Yorozu Corp. and Akebono Brake Industry Co., have already applied for U.S. government guarantees on receivables under a $5 billion Treasury Department program.

But many small suppliers haven’t qualified for the federal assistance because they need to be approved by GM to be deemed necessary sources for the failing U.S. giant, experts said.

“The situation is very tough for small and weak parts makers,” said Yasuo Aoki, director in the international department of Japan Auto Parts Industries Association. “There are actually some Japanese makers that have not yet been told by GM to apply for the program.”

Even parts makers that are expected to get the federal assistance anticipate a decline in sales.

Yorozu, which had ¥21 billion in group sales from GM for the business year that ended in March, now expects to see sales tumble to ¥8.5 billion for this business year to next March.

GM, Chrysler Corp. and Ford Motor Co. account for 19 percent of Akebono Brake’s group sales, but that figure will fall to 14 percent this business year, Akebono said.

Satoko Terasawa, senior credit analyst at Mizuho Securities Co. in charge of the auto sector, said suppliers of parts for restructured automakers will see sales tumble.

“Those providing parts for Cadillac, Chevrolet and GMC will survive. But those depending on Saturn and Hummer will either see their supply cut or go with a very small amount of sales,” Terasawa said.

“The natural selection of parts makers will gain speed,” she said.

Major Japanese parts makers said they have been preparing for GM’s bankruptcy for months, even years.

“We have made efforts to increase our (exposure to) Japanese makers for a few years, as the shares for the U.S. Big Three have been declining,” said Yoshio Arai, a senior spokesman for Akebono.

To minimize the fallout of GM’s bankruptcy on Japan, the government will extend emergency financial aid to small and midsize suppliers of auto and other parts to GM, according to the Ministry of Economy, Trade and Industry.

Automakers with business ties to GM will meanwhile carefully monitor its restructuring.

Toyota Motor Corp., which jointly set up with GM in 1984 the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, Calif., plans to continue the tieup. The plant produces Toyota’s Corolla and Tacoma, and GM’s Pontiac Vive.

There has been speculation Toyota may also lend support to GM because the U.S. market is the top moneymaker and Toyota has been sensitive to any trade friction with the U.S. or threat to boycott Japanese cars.

Suzuki Motor Corp., which has long been an ally of GM, is also cautiously waiting.

Its tieup with GM started 28 years ago when GM bought Suzuki shares. Suzuki later bought back a 17 percent stake in 2006 and GM’s remaining 3 percent in 2008. Even after the two makers capital tieup ended, they continued cooperating on technology development.

“We are calmly and cautiously watching what the U.S. government will do,” Suzuki Chairman and President Osamu Suzuki said last Wednesday.