ANALYSIS: GM failure to affect Japan's auto industry

By Chie Matsumoto Jun 1, 2009, 9:44 GMT

   Tokyo - The unprecedented government takeover of US auto giant General Motors Corp (GM) as it files for bankruptcy on Monday is having a knock-on effect across the Pacific in Japan.

   Although Japanese firm Toyota Motor Co is now the world's biggest automaker, Japan's auto industry is bracing for potentially worse consequences than it suffered in annual losses for fiscal 2008.

   But some analysts say the GM failure had been anticipated and Japanese carmakers have already taken measures to prepare for it.

   'There would have been great turmoil if GM had collapsed late last year, but there is unlikely to be any dramatic fall in stock prices in the short-term future since (the news) has already been sufficiently priced into the current markets,' Kyodo News Agency quoted Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Securities Co, as saying.

   Nissan Motor Co President Carlos Ghosn said last month that many suppliers were getting ready for the US government takeover of GM to avoid 'any dramatic consequence on the rest of the industry.'

   Shortly after reports of GM's bankruptcy on Monday, optimism returned to Tokyo markets. Investors were relieved and hopeful that the financial situation of the largest US non-financial company appeared finally settled.

   Japan's benchmark Nikei 225 Stock Average soared to an eight-month high at the end of Monday trading. Investors bought shares across the board, leading to a 1.6-per-cent rise from Friday's closing.

   But concerns remained in the auto sector. Toyota Motor and Honda Motor shares were both down by 1 per cent.

   Analysts say the longer it takes for GM to exit the court process, the more clients it would lose and the more Japanese suppliers would be dragged into chain reaction bankruptcies.

   Some 114 Japanese companies, 70 of them auto parts or related trading companies, currently have business ties with GM and companies in its group, according to Tokyo Shoko Research agency.

   The Japanese partners reported their annual sales to GM were around 400 billion yen (4 billion dollars) for fiscal 2008, a figure that could halve for the current fiscal year, Japan's daily The Nikkei paper said.

   Amid investors' concerns, Toyota Motor Corp and Suzuki Motor Corp on Monday said they plan to maintain their joint activities with the ailing US partner regardless of its failure.

   Toyota has a 50-50 venture making passenger cars with GM in the United States, while Suzuki has been operating CAMI Automotive Inc, a passenger car production business with GM in Canada.

   Takahide Kiuchi, chief economist at Nomura Securities Co, warns of medium- to long-term negative impacts on Japan's financial sector but said the direct impact on Japan's real economy would be limited.

   If concerns over the expansion of the US government's deficit caused the US dollar to advance against the yen, and bond and stock prices to fall, then the stronger yen, stock price falls and the long-term interest rate rise would affect Japan's economy, Kiuchi said.

   Some Japanese auto parts makers have reportedly already applied to a US government programme offering aid to subcontractors. But since not all firms are eligible, the Japanese government is considering offering aid to minimize the impact from GM.

   The Japanese auto industry may also be able to dodge a major crisis as a rapid increase of exports to China and other parts of Asia means a shift in the main export partner for Japan, experts observed.

   Unlike their US counterparts, Japanese carmakers were quicker to change their vehicle concepts to petrol-electricity hybrids for more environmentally conscious low-carbon markets.