A GM failure would cause production problems, crush already weak demand and potentially open the door to low-cost competitors.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 15, 2008
NEW YORK (CNNMoney.com) — Detroit’s Big Three aren’t the only automotive companies that want to see the government step in with some much needed financial help.
Overseas automakers, most notably Toyota Motor, all endorse some form of federal aid to keep General Motors (GM, Fortune 500), Chrysler LLC and possibly Ford Motor (F, Fortune 500) out of bankruptcy.
The Senate killed an effort to get the automakers a stopgap loan last week and now the Bush administration has said it is looking at providing the automakers help from the $700 billion approved to bailout banks and Wall Street firms.
“We support measures to help the industry,” said Toyota Motor (TM) spokeswoman Mira Sleilat.
The overseas automakers, who between them produce more than 3 million vehicles a year at U.S. plants, all worry their production would be hurt if one of the U.S. automakers went under. That’s because a Big Three failure would likely lead to widespread bankruptcies in the auto parts supplier industry.
Erich Merkle, lead auto analyst with the consulting firm Crowe Horwath LLP, said there is much overlap between the automakers’ suppliers. Since most parts in an automobile have only a single supplier producing them, the disruptions in production will be severe and prolonged.
The final concern for the overseas automakers is a longer-term problem. If a U.S. automaker fails, that could open the door for a Chinese or Indian automaker to buy up the assets of the failed automaker and create a new low-cost competitor in the U.S.
“You could open the door for foreign companies to buy distressed assets at rock bottom prices,” he said. He pointed to India’s Tata (TTM) and China’s Geely, as two automakers in the developing world that are already on record as being interested in expanding into western markets like the United States.
“Tata and Geely would be incredibly open to brownfield sites,” he said, referring to the term used to describe companies that buy discarded industrial facilities.
