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Old 12-17-2008, 01:41 PM   #1
AVANTI R5
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Default Why Toyota wants GM to be saved



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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 bail out banks and Wall Street firms.
"We support measures to help the industry," said Toyota Motor (TM) spokeswoman Mira Sleilati. "We just want a strong, competitive healthy industry."



This may seem surprising at first, especially considering that much of the opposition to the auto bailout was from senators from Southern states that are home to auto plants operated by Asian auto companies, such as Alabama and South Carolina. But the Asian automakers insist they never lobbied against such help for the Big Three.


And this makes sense after taking a closer look at the dynamics of the auto industry and the intertwined fates of its companies.


Here's why Toyota, Honda Motor (HMC) and other Asian auto manufacturers clearly believe they are all better off if GM and Chrysler survive.


Collateral damage
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.
"It could take months for a Toyota to work through that and resume normal production," he said.


Merkle said the current network of auto suppliers, manufacturers and dealerships has worked well for the overseas automakers, who have posted steady gains in their U.S. market share during the past few years.


Besides sharing suppliers, many dealers sell both U.S. and overseas brands. So the failure of a U.S. automaker could hurt the overseas manufacturers' dealer network and their sales as well, Merkle said.
"There would be a severe disturbance in the force," he quipped.


Economic shockwaves
A collapse of one of the Big Three would also probably cause an even more severe hit to the U.S. economy. That would further eat into demand for U.S. auto sales, which hit a 26-year low in November.


"The U.S. economy would be in shambles," Merkle said. "The robust U.S. economy that Toyota and the others depend on would suddenly not be as lucrative."


The overseas automakers agree that the last thing they need is for the U.S. economy to slow further. The U.S. is the largest market for Toyota, Honda and Nissan (NSANY). All are expected to report lower U.S. sales this year for the first time ever.


"We want to get the economy back," said Michael Stanton, CEO of the Association of International Automobile Manufacturers, which represents most of the Asian automakers with plants in the U.S. "Everyone is hurting at this level of sales. Everybody is either cutting back or shutting down."


The latest cutbacks came Monday, when Toyota announced it was putting plans to open a new plant in Mississippi on hold indefinitely, even though it is about 90% complete. The plant was set to start building the first domestically produced Prius in 2011.


While the overseas automakers would be certain to eventually pick up more U.S. market share if a U.S. automaker stopped doing business, Merkle said the need to sell off the inventory of the failed automaker at fire-sale prices would depress all prices in the industry in the short term.


Enter new competition
The final concern for the overseas automakers is a longer-term problem. The failure of a U.S. automaker could open the door for a Chinese or Indian automaker to buy up the assets of the failed company 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, using the term that describes companies that buy discarded industrial facilities.


Toyota and Honda have already felt the effects of competition from other upstarts firsthand in the U.S.
Korean manufacturers Hyundai and Kia have eaten into the sales of Toyota's and Honda's small, inexpensive vehicles, but that growth has taken decades.



Merkle said it might take a year or more for a new competitor to get off the ground. But by grabbing U.S. automakers' assets, vehicle designs and dealerships, an incoming Indian or Chinese manufacturer could quickly become a low-cost threat much quicker than the Koreans.
The established automakers like Toyota and Honda are also unlikely to look to buy the distressed assets themselves because they have never used acquisitions or purchases of other companies' assets as a method of growing.



Instead, they have always built their own facilities from the ground up in order to expand. Merkle said that is unlikely to change, even if the more productive facilities of U.S.


automakers were put up for sale by a bankruptcy court.
While companies such as Tata or Geelyare likely to eventually enter the U.S. anyway, Merkle said the vacuum caused by the failure of GM or Chrysler could jumpstart those efforts and bring them to the market years earlier than expected.
http://money.cnn.com/2008/12/15/news...on=money_autos
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Old 12-17-2008, 02:00 PM   #2
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So basically Toyota will lose its economic meat shield if GM goes under.
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Old 12-17-2008, 02:04 PM   #3
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OK, so Toyota, Honda and Nissan should be able to afford to buy a portion each of the domestics thus granting the money they need. Fire the current heads opf thepurchased companies and the current heads of the purchasing companies assume the roles.
GM, Ford and Chrysler get to stay open, and people have their jobs, Toyota, Honda and Nissan get production capacity, technology and access to competing products, and the current supplier stay viable, and a potential share of profits down the road.
$8.33 billion each for all that sounds like a bargin.
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Old 12-17-2008, 02:07 PM   #4
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If GM went under, I wonder if Chevy would keep going . From what I understand Chevy itself is its own company, its parent company is GM and that the books at Chevy arnt that dire at the moment and most likely would survive without foreighn money . If Chrystler and GM went under wouldnt that put Ford in a short term bind that would only benefiet them in the future ?
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Old 12-17-2008, 02:10 PM   #5
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OK, so Toyota, Honda and Nissan should be able to afford to buy a portion each of the domestics thus granting the money they need. Fire the current heads opf thepurchased companies and the current heads of the purchasing companies assume the roles.
GM, Ford and Chrysler get to stay open, and people have their jobs, Toyota, Honda and Nissan get production capacity, technology and access to competing products, and the current supplier stay viable, and a potential share of profits down the road.
$8.33 billion each for all that sounds like a bargin.
The problem with that is that the US Goverment would have to approve of the sale into these companies and since these companies are also huge defense contractors for DOD the sale would probably be denied . Also I dont beleive Ford is in such dire straights right now that they would consider this a option .
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Old 12-17-2008, 02:15 PM   #6
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Ford is in dire straits, the only reason they are not looking for the bail out is they have an alternate line of credit secured which I believe amounts to more money than their share of the bail out would be.

Good point of the defense contracts though. I dont know what they produce anymore. Perhaps the defense aspect of each of these companies should be sold off in order to secure funding from other countries or foreign manufacturers?

Maybe the government wouldthen be more inclined to give the go ahead on the purchase so that they do not have to provide a bail out or have any other type of involvment. The government would also benefit in other wayssuch as a lower unemplyment rate = higher tax base.
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Old 12-17-2008, 04:13 PM   #7
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I dont think that they Goverment really wants a foreighn company involved with the Big Three . They would encourage maybe another sucessfull buisness to invest in the big three, but I just dont see it being a foreighn player . It looks like the Obama presidency would also be against this, seeing that foreighn manafactuers set up shop in non-union states and Obama is pro-union and would cripple his party if he went against the unions .

In reality they will get there money and at worst declare bankruptcy and re-organize . The big Three arnt going anywhere . It is just bad times, and will probably serve them better in the future for going through them .
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Old 12-17-2008, 06:06 PM   #8
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Ford is in dire straits, the only reason they are not looking for the bail out is they have an alternate line of credit secured which I believe amounts to more money than their share of the bail out would be.
Ford has also sold almost everything they owned in the last 2-3 years. That is the biggest reason they actually still have some money. I believe the only thing ford still owns is Volvo. At least that is what I come to understand form reading about the whole Big 3 issue.
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Old 12-17-2008, 06:16 PM   #9
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Ford has also sold almost everything they owned in the last 2-3 years. That is the biggest reason they actually still have some money. I believe the only thing ford still owns is Volvo. At least that is what I come to understand form reading about the whole Big 3 issue.
Did you see Jean Jennings Today on Fox Business..She was explaining why and how Ford is in alot better position then GM and Chrysler.She mentioned what you said too..
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Old 12-17-2008, 06:23 PM   #10
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But Ford will be in the same boat as the rest of the Japanese automakers if GM goes under as suppliers are soon to follow suit.
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Old 12-17-2008, 07:26 PM   #11
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Originally Posted by ASU View Post
If GM went under, I wonder if Chevy would keep going . From what I understand Chevy itself is its own company, its parent company is GM and that the books at Chevy arnt that dire at the moment and most likely would survive without foreighn money . If Chrystler and GM went under wouldnt that put Ford in a short term bind that would only benefiet them in the future ?
:Picard: Sweet jebus, this guy can't be for real.
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