The Corner

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Car Calumny, Cont’d


There is an effort underway on the left to portray the GOP senators who opposed the Detroit-three bailout as agents of the foreign automakers who locate their U.S. factories disproportionately in the South. These senators allegedly want the Detroit three to collapse so there will be less competition for Nissan, Toyota and Honda.

It might be interesting, in evaluating the merits of this theory, to look at how investors reacted to the Senate’s failure to pass the bailout. Here’s a snapshot:

TOKYO (Reuters) – Asian auto stocks slumped more than 10 percent on Friday after the U.S. Senate rejected a $14 billion plan to bail out U.S. car makers, increasing the chance of an industry-damaging bankruptcy at one of Detroit’s “Big Three.”

Spooked by the prospect of widespread job losses and supply disruptions in the sector, along with the knock-on impact on an already-debilitated global economy, investors dumped shares in Toyota Motor Corp, Honda Motor Co and other auto stocks, which fell by more than 10 percent in Tokyo. [...]

Analysts and auto executives say bankruptcy at any of Detroit’s car makers — General Motors Corp, Ford Motor Co or Chrysler LLC — could cause a domino effect of failures at their suppliers and pressure other automakers to extend financial aid in some cases to keep their factory lines running.

“If this causes the parts makers under the umbrella of the Big Three to go under that could disrupt the supply of parts to Japanese automakers producing in the U.S.,” said Hiroyuki Fukunaga, representative director of Investrust Inc in Tokyo.

“One way some people choose to look at this is that it could eliminate competition from the U.S., leading to a concentration of power in the auto industry to Europe and Japan. But the reality is that this would probably lead to severe conditions for the Japanese automakers as well,” he said.

The senators who opposed the bailout weren’t doing the foreign automakers any favors. The bankruptcy of one or more of the Detroit car companies is not a risk-free proposition for them, and not just because it might cause disruptions in the parts market. A Chapter 11 restructuring that threw out the more onerous provisions of the Detroit three’s labor contracts would probably make them more competitive in the long run. If I were running a foreign car company, I would be rooting for a bailout that kept the Detroit three limping along in their current uncompetitive state just long enough for me to buy up some key suppliers and steel my company for their eventual collapse.