FOCUS: Chrysler bankruptcy stirs worries on fate of Japan auto parts sector

TOKYO, May 1 Kyodo -
As the struggling U.S. automaker Chrysler LLC filed for Chapter 11 bankruptcy
proceedings, the guessing game on the future of one of the Big Three automakers
ended but fears about the fate of Japanese automakers' auto parts suppliers
have yet to be totally erased.
In a recent press conference, Satoshi Aoki, chairman of the Japan Automobile
Manufacturers Association and chairman of Honda Motor Co., said a bankruptcy
would ''definitely be a negative for the broader U.S. economy as well as
Japanese automakers and auto parts makers that are supplying Chrysler.''
Separately, Honda Executive Vice President Koichi Kondo showed concern that
such a failure will ''chill consumer sentiment.''
After 11th-hour negotiations to strike a deal with some creditors failed, U.S.
President Barack Obama announced the filing of Chapter 11 for Chrysler, marking
the first-ever such move by a Big Three automaker, on Thursday, the
government-imposed restructuring deadline for the automaker.
The failure of one of the Big Three has raised concerns it will lead to massive
job losses and a possible chain of bankruptcies for their automotive parts
makers and suppliers.
Arifumi Yoshida, an auto parts analyst with Nikko Citigroup Ltd., said,
''Simply put, Chrysler entering the Chapter 11 proceedings gives the automaker
a bad image to consumers and this will translate to reduced production and a
dent in profits.''
Some auto parts firms have voiced concern that the bankruptcy may lead to the
loss of several tens of billions of yen worth of transactions.
According to the latest statistics made available by the Japan Auto Parts
Industries Association, about 290 Japan-affiliated auto parts makers were
operating in the United States in 2007 and gross sales to the country in the
same year totaled roughly 3.5 trillion yen.
Takehide Takahashi, the JAPIA's vice chairman and executive managing director,
said he could not give an overall picture of how the nation's auto parts
industry will be affected in connection with Chrysler's bankruptcy as the
impact varies for each company.
Takahashi said that companies have certainly taken steps to minimize financial
damage to prepare for such a scenario since the issue of viability for the Big
Three surfaced last year.
But recognizing the ''complex correlation'' in the network of automakers and
auto parts makers, he said, ''What we cannot calculate beforehand is the
magnitude of how it will impact the entire system (hereon).''
With the Chrysler issue no longer an isolated problem for the United States,
the Canadian government has said it will provide financial support to the
carmaker. U.S. auto manufacturers have plants in Canada.
But Japanese government officials and industry players downplayed the
significance of the bankruptcy, saying the impact is likely to be ''limited''
as steps have already been taken to cushion the impact of such failure and the
collapse has been factored in.
Finance Minister Kaoru Yosano said the impact from the Chrysler failure will be
''extremely small,'' citing such financial support from Canadian and U.S.
governments to the automaker.
Also, Japanese firms have applied for a U.S. Treasury Department program
unveiled in April to support auto parts suppliers. The program involves
guaranteeing receivables owed by Chrysler and General Motors Corp. to suppliers
in exchange for a small fee payable to the U.S. government.
To date, six Japanese firms have applied to the program. Among them are Yazaki
Corp., which supplies GM and Chrysler with wire harnesses and indicators, and
home electronics maker Mitsubishi Electric Corp., which has supplied generators
and engine starters to Chrysler and also has business transactions with GM.
Yasuaki Iwamoto, an auto analyst at Okasan Securities Co., welcomed the program
as a sure factor to ''soften the blow'' caused by bankruptcy.
Iwamoto added, ''The bankruptcy itself will be a mild one since it will be
supervised by the government, and it does not mean that there is a sudden halt
in production line.''
In unveiling the bankruptcy filing, Obama struck an optimistic chord as he said
the bankruptcy process was ''not a sign of weakness but rather one more step on
a clearly chartered path to Chrysler's revival.''
Chrysler opting to file for Chapter 11 bankruptcy makes it easier for the
company to restructure its dealerships.
As the curtain closed on Chrysler's woes, the auto industry and market players
are now shifting attention to the fate of GM, the other ailing Big Three
automaker which has a later restructuring deadline on June 1.
Yoshida said, ''After Chrysler's filing of Chapter 11, the Tokyo stock market
did not collapse, and this may give a sense of assurance that even if GM
ultimately decides like Chrysler, things will turn out just fine.''
But whether the optimism will carry on or taper off remains uncertain amid the
global economic downturn, which has hurt overall U.S. consumption.
''Ultimately, what everyone is interested in seeing is whether U.S. consumers
will start buying cars and what kind of cars will be sought by consumers,''
Takahashi of the JAPIA said. ''Naturally, when cars are not bought, there's no
business for auto parts firms.''
==Kyodo