Japan Brief/FPCJ, No. 0930
June 5, 2009


GM’s Bankruptcy Filing Comes as Sobering News to Japanese, Too

For the Japanese, the news of General Motors’ June 1 filing for bankruptcy proceedings under the US Federal Bankruptcy Code came as a sobering reminder of the plight of the world’s auto industry, which does not seem to be sparing Japanese carmakers despite their seemingly superb competitive strength. No immediate serious impact is being felt, however, by the Japanese industry as a whole from the demise of the long-time icon of America’s industrial and economic might.

All three Japanese carmakers that have capital connections with the US company—Toyota Motor Corp., Isuzu Motors Limited, and Suzuki Motor Corp.— remained calm, saying they had no immediate intention of severing their relations. Toyota’s President Katsuaki Watanabe told reporters in Tokyo on June 1 that his company would continue its joint car manufacturing firm with GM, California-based NUMMI, which started operations in 1984.

Likely to come under a more direct impact from the sharp downsizing of GM are the 133 Japanese parts makers which have been supplying products to GM. For 102 of these, GM is a main customer. Should their deals with GM be discontinued, some of them could suffer a loss of business on the order of hundreds of millions of yen (as reported by The Nikkei). Moreover, if US parts makers supplying GM go under in a ripple effect from the auto giant’s bankruptcy, that could affect Japanese assembly makers’ ability to secure parts in the United States.

Concerns in Japan are more focused on the overall picture of the world’s auto industry, which has been suffering a devastating shrink in demand for cars in the aftermath of the global economic downturn. The reorganized GM operation is expected to be reduced to some 60% of what it was in terms of output and employment. The downsizing roughly corresponds to the situation of the world’s car industry, where new car sales in 2009 are expected to dwindle to 50.4 million vehicles, compared with a production capacity for 87.6 million vehicles, leaving an excess capacity of nearly 40%.

Japan’s car industry is not being spared. For example, Toyota’s annual production capacity has topped 9 million vehicles, but sales in fiscal 2009 (ending March 2010) are projected to be only 6.5 million vehicles. Toyota Motor’s Executive Vice President Akio Toyoda, who is slated to assume the presidency soon, warned that “What happened to GM could happen to our company in two or three years’ time.”

For survival, Japanese carmakers are being forced to downsize and become profitable at an output reduced to match sales. Weaning them from the markets of industrialized countries, the United States in particular, on which they have heavily depended, will be a major task. And in the markets of developing countries they will face a major challenge from makers in emerging economies like China and India, so nothing can be taken for granted. As competition stands to intensify in a shrinking market, another focus will be the development of eco-cars—hybrids and electric vehicles in particular.

Doubts about Early Recovery of Competitiveness

Japanese media commentaries expressed relief for the time being over GM’s bankruptcy proceedings under Chapter 11 but were largely skeptical about the capability of a reorganized, virtually nationalized, GM to come up quickly with competitive products that will be accepted by consumers. They also expressed concern about the consequences, economic and otherwise, of the Obama administration’s massive commitment to the rescue of GM, since its rebirth probably will not be achieved as quickly as planned. (All excerpts are from June 2 editorials.)

Asahi Shimbun: “With the world auto market shrinking, the US government's involvement in GM's reorganization process should not be allowed to result in protectionism.” “The government-led restructuring may downsize the company necessary for its viability. But it will be a Herculean task for the government to revive GM's profitability by reinventing its businesses.” “The key challenge confronting the bankrupt auto giant is how to develop and efficiently manufacture promising new products like fuel-efficient small cars and hybrid and electric vehicles. A radical change in the mind-set of both top executives and factory workers of the company will be crucial in tackling this challenge.”

Mainichi Shimbun: “The ultimate cause of GM’s going bankrupt was its failure to make cars attractive to consumers, and that is a point Japanese carmakers should keep in mind as well. In the past many people dreamed of owning a car, but recently young people especially are losing interest in cars. It is necessary for carmakers to reflect on their own sensibility with regard to their capability to produce attractive cars.”

The Nikkei : “GM’s filing for bankruptcy proceedings can be said to be the terminal end of Detroit’s losing competitive power that started in the 1970s. One reason that can be cited is an unduly strong union. The United Automobile Workers refused to face up to the realities of global competition and rejected concessions, leaving the so-called legacy costs like pensions and medical expenses for retired workers ballooning.” “The situation would not have deteriorated this far if they had adopted the Japanese-style practice in which management and workers work together to reduce costs.” “The revival of an automaker is possible only with cars that sell. The development of attractive cars that respond to the need of the times will be essential for GM’s revival.”

Sankei Shimbun: “What is important from now on is whether GM can move out of the court’s protection and start a new life as a company that can generate profits on its own. The bankruptcy of GM, which boasts a history of 100 years, is a consequence of its failure to keep up with the changing times. This was a problem that emerged in the 1980s, when trade friction between Japan and the United States was intensifying. Yet the US automakers relied on the political pressure that Washington applied on Japan in the face of the offensive of Japanese cars, unable to get rid of the deeply ingrained ‘arrogance of the champion.’”

Yomiuri Shimbun: “A leaner GM as a result of drastic restructuring warrants no optimism that the company would be quickly rehabilitated. U.S. taxpayers also are wary of injecting a huge amount of public money into the automaker. The biggest challenge is whether GM can regain competitiveness by developing popular sellers such as ecologically friendly cars. The carmaker faces fierce competition with rivals around the world. Sales of automobiles are declining in North America. The new GM will have to tread a thorny path.”

(Copyright 2009 Foreign Press Center, Japan)

*Japan Brief is an original production of the Foreign Press Center, Japan, and does not represent the views of the Government of Japan or of any other body.


<Related Articles>
-Japanese Economy Records Worst Postwar Contraction in First Quarter(2009-05-22)
-Japan Decides on Another Stimulus Package of Unparalleled Scale(2009-04-13)
-At G-20 Meeting Japan Sides with the U.S. and China in Advocating Stimulus(2009-04-06)
-【Press Briefing Report】Prof. Hiroshi Yoshikawa, Univ. of Tokyo: Outlook for the Japanese Economy in 2009(2009-03-10)
-Steepest Shrinking of GDP in 35 Years in Last Quarter of 2008(2009-02-24)
-New Additional Bailout Measures(2009-02-10)