Predictably, news of the failure of the Detroit bailout plan sent Japanese auto stocks crashing in Friday trading. After the Senate rejected the $14 billion loan plan late Thursday, Toyota plunged 10%, while Honda and Nissan lost 12.5% and 11.5%, respectively, in Tokyo.
The size of the sell-off once again highlights that Asian automakers also have plenty to lose if one or more of the Big Three enters bankruptcy. Short term, the big fear is that part suppliers used by the Big Three and transplants will go out of business. Then there’s the likelihood that already slumping car sales will be dealt another blow. Further into the future, increased market share created by one or more fewer competitors may be offset by weaker margins. Analysts point out that competing with each other (as happens in Japan where over 90% of cars sold are Japanese) is likely to be far less profitable than competing with weaker Detroit rivals in the U.S.
In all, today’s stock slump, made worse by the dollar touching a 13-year low against the yen, wiped $18 billion—significantly less than Chrysler and GM were demanding—off the three biggest Japanese auto companies’ combined market capitalization.