Why Toyota wants GM to be saved

[Dragon]

http://money.cnn.com/2008/12/15/news/compa...akers/index.htm

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 ™ spokeswoman Mira Sleilati. "We just want a strong, competitive healthy industry."

This may seem surprising at first, especially when you consider that much of the opposition to the auto bailout was from senators from Southern states 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 once you take a closer look at the dynamics of the auto industry and how intertwined the fates of all the companies are.

Here's why Toyota, Honda Motor (HMC) and other Asian auto manufacturers clearly believe they are all better off with GM and Chrysler surviving than if they go out of business.

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 have 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. 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.

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, Merkle said.

While companies such as Tata or Geely are 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.

[Sal Collaziano]

I didn't read the article but my belief for any reasoning by Toyota that GM needs to survive is..... Fear. Toyota fears what life might be like in the United States after the Big 3 fail. How welcome would they be? Their factories might be under constant attack by various people - including newly poor people who never thought about alternative careers in the event the unions bled the corporations dry.

[Drew Dowdell]

I didn't read the article but my belief for any reasoning by Toyota that GM needs to survive is..... Fear. Toyota fears what life might be like in the United States after the Big 3 fail. How welcome would they be? Their factories might be under constant attack by various people - including newly poor people who never thought about alternative careers in the event the unions bled the corporations dry.

The failure of GM or Ford would likely take out all of the big three and severely damage everyone else.

[Dragon]

I didn't read the article but my belief for any reasoning by Toyota that GM needs to survive is..... Fear. Toyota fears what life might be like in the United States after the Big 3 fail. How welcome would they be? Their factories might be under constant attack by various people - including newly poor people who never thought about alternative careers in the event the unions bled the corporations dry.

basically the article boiled it down to 3 points

-supply chain problems. they share many suppliers who would go down causing problems

-loss of dealerships because many dealers sell both foreign and domestic

-economic downturn. would lead to a severe reduction in sales

-new competition. loss of the big 3 would open up the market for companies like Chery to come in and theoretically eat away at Toyota, Honda, et al

[coders11]

Maybe they should call Sen. Shelby and let him in on this tidbit of information

[toesuf94]

Somewhat related: Is it true Imported cars are being targeted in areas that have manufacturing bases for one of the big 3? I do not condone this, just curious if this backlash is indeed occuring.

Just remember what YOUR lawmakers did when it comes time to vote again...get rid of the bastards that cannot seem to LOAN our money to those that are deserving...while they GIVE away BILLIONS to those that produce nothing with NO stipulations freely. Really chaps my ass!

Edited December 16, 2008 by toesuf94

[vonVeezelsnider]

Somewhat related: I have heard that Toyotas and Japanese cars in general, are being targeted by people in Detroit or areas where manufacturing for one of the Big 3 produce...can anyone verify that this is indeed taking place? I do not condone this, just curious if this backlash is indeed occuring.

Yeah I heard about that happening recently in Metro Detroit...

[cletus8269]

Southern states home to auto plants operated by Asian auto companies, such as Alabama and South Carolina.

again, what asian marquee is built in SC? i thought only BMW's where the imports assembled here.

[David]

Somewhat related: Is it true Imported cars are being targeted in areas that have manufacturing bases for one of the big 3? I do not condone this, just curious if this backlash is indeed occuring.

Just remember what YOUR lawmakers did when it comes time to vote again...get rid of the bastards that cannot seem to LOAN our money to those that are deserving...while they GIVE away BILLIONS to those that produce nothing with NO stipulations freely. Really chaps my ass!

I have seen no backlash against asian or European auto makers.

In regards to the 1.5 Trillion given to the banks with no oversite and no responsibility control. Why we can flush this money down the drain with no payback compared to a paltery 34Billion loan backed by assets is beyond me. Shows just how stupid the GOP senators really are. Get religion and narrrow thinking out of Politics. History has shown us that any time religion gets involved in politics everyone looses.

[turbo200]

I have seen no backlash against asian or European auto makers.

In regards to the 1.5 Trillion given to the banks with no oversite and no responsibility control. Why we can flush this money down the drain with no payback compared to a paltery 34Billion loan backed by assets is beyond me. Shows just how stupid the GOP senators really are. Get religion and narrrow thinking out of Politics. History has shown us that any time religion gets involved in politics everyone looses.

the government now owns preferred stock in most of those banks that have taken money from the Tarp. it is 700 billion which was allocated to them, and the government was able to take stakes in those companies. when the stock rebounds, the government will actually make a profit on the investment.

[prinzSD]

Somewhat related: Is it true Imported cars are being targeted in areas that have manufacturing bases for one of the big 3? I do not condone this, just curious if this backlash is indeed occuring.

Just remember what YOUR lawmakers did when it comes time to vote again...get rid of the bastards that cannot seem to LOAN our money to those that are deserving...while they GIVE away BILLIONS to those that produce nothing with NO stipulations freely. Really chaps my ass!

Not sure if this applies but yesterday an Audi dealer reported that someone went through the parking lot las night and keyed a hundred or so brand new Audis...ouch. The same street has a Pontiac, Lexus, Mercury and Hyundia dealerships. Strange that they just targeted an expensive forign luxury brand but then Lexus went unscathed so maybe it was a disgruntled customer.

[FUTURE_OF_GM]

Maybe they should call Sen. Shelby and let him in on this tidbit of information

Well, It's this kind of "what good for me above all else" mentality is what has gotten this country into the situation it's in anyway. americans are greedy, individualistic people, many of which have been spoiled for 2 or 3 generations now.

It's almost like a new form of tribalism.

IMO, the problem is twofold; 1) How do we reverse this culture of 'cutting one's nose off for the purpose of saving their face. (i.e. how do we get people informed enough to see 'the big picture') and 2) How to we walk the fine line of allowing government representatives to actually protect the interest of their states. Because we certainly can't have 'yes men' that agree to everything. Then what's the point of the term 'representative?

Edited December 16, 2008 by FUTURE_OF_GM

[FUTURE_OF_GM]

Somewhat related: Is it true Imported cars are being targeted in areas that have manufacturing bases for one of the big 3? I do not condone this, just curious if this backlash is indeed occuring.

Just remember what YOUR lawmakers did when it comes time to vote again...get rid of the bastards that cannot seem to LOAN our money to those that are deserving...while they GIVE away BILLIONS to those that produce nothing with NO stipulations freely. Really chaps my ass!

I agree...

As much as I hate the imports and the majority of their buyers, I wouldn't want to see someone's personal property vandalized. That's just not the appropriate way of doing things.

[wildpaws]

the government now owns preferred stock in most of those banks that have taken money from the Tarp. it is 700 billion which was allocated to them, and the government was able to take stakes in those companies. when the stock rebounds, the government will actually make a profit on the investment.

And if you truly believe that hogwash, I've got a bridge for sale near Brooklyn, NY at a very reasonable price, email me ASAP for pricing!

Clyde

[thenewdamage]

What reading the OP made me think of was how an efficient parasite keeps its host healthy enough to survive and to feed it forever.

[CARBIZ]

Well, It's this kind of "what good for me above all else" mentality is what has gotten this country into the situation it's in anyway. americans are greedy, individualistic people, many of which have been spoiled for 2 or 3 generations now.

It's almost like a new form of tribalism.

IMO, the problem is twofold; 1) How do we reverse this culture of 'cutting one's nose off for the purpose of saving their face. (i.e. how do we get people informed enough to see 'the big picture') and 2) How to we walk the fine line of allowing government representatives to actually protect the interest of their states. Because we certainly can't have 'yes men' that agree to everything. Then what's the point of the term 'representative?

This is the crux of the matter. We are seeing an influx of one or two generations where entitlement is the norm. I will give a very good example: who here has ever pirated a VHS movie, DVD or has an illegal decoder box for cable? It has almost become socially acceptable to steal intellectual property, but it is a slippery slope.

I used to own 2 video stores and friends of mine would openly brag about copying movies off their satellite and freely distributing it to their friends. They saw nothing wrong in that. One woman sniffed that she couldn't 'afford' to pay for cable, so she had a pirated chip.

WELL, IF YOU CAN'T AFFORD IT, YOU DON'T STEAL IT! That used to be common sense, but apparently not any more.

Now those same people are in postitions of power and feel 'entitled' to do what they please.

If your neighbor owned an electronics store and you need a new TV and were offered a 'hot' one at a really good deal - would you take the deal? Would you do it, knowing it was affecting your neighbor's job? Could you face this man/woman while you were out front, washing your car?

We need to take a hard look at ourselves and the choices that we make. Their are no free lunches out there.

[ZL-1]

I didn't read the article but my belief for any reasoning by Toyota that GM needs to survive is..... Fear. Toyota fears what life might be like in the United States after the Big 3 fail. How welcome would they be? Their factories might be under constant attack by various people - including newly poor people who never thought about alternative careers in the event the unions bled the corporations dry.

It is fear but not at that level. Remember this is just business, so there are no feelings involved here: GM/Ford/Chrysler go down, major suppliers go down with them since even Tier1 suppliers have had their margins squeezed for years due to pressures from OEMs. Since all major OEMs share suppliers, Toyota would be seriously hit by GM/Ford/Chrysler bankruptcies.

[regfootball]

i would look at a hyundai, kia, or tata before a toyota. of course, a suzuki or mitsubishi even first.

toyota is large enough. i do not want to fuel that machine any more. mazda i used to support because of the ford tie ups. honda to some degree i see as more multifaceted and having contributed to the US fabric longer (motorcycles etc).

i think trade can be free and fair but to me supporting toyota is fueling the bieest machine even more and so therefore I do not want to do that.

in all cases, i like to try to find a domestic brand alternative first and as carbiz said, they offer 100 models, can you not find one that will work out for you? With my limited budgets I usually can. I do not have the cash to obsess about audi level interiors.

[Daryl Z71]

All I can say is if the Big Three go down I hope Toyota goes with them. Maybe that will finally get there garbage out of our country. If the government doesn't do something soon people will be sorry!

[smk4565]

Toyota will be fine in the long run, they won't go down. They just like their slow, steady growth and don't want any shocks thrown into the system. If Toyota was so worried about the Detroit 3, they could buy them and inject cash in, but clearly they want no part of that mess.

[ZL-1]

Toyota will be fine in the long run, they won't go down. They just like their slow, steady growth and don't want any shocks thrown into the system. If Toyota was so worried about the Detroit 3, they could buy them and inject cash in, but clearly they want no part of that mess.

They're worried about the operational and financial health of their supply chain and if I was in their shoes I'd be worried too.