Saturday 13 December 2008

Japanese & Korean bail-out plan rejected (JP & KR)

While the Swedish government is bailing out Swedish manufactures like Saab and Volvo with a $3.4 billion bail-out plan, Asian auto stock markets were badly affected thanks to the U.S Senate's decision to reject the $15 billion government loan package for Detroit's big three car-makers. Telsa is currently seeking a $350 million loan for the U.S government.

Japanese car-maker, Toyota was off by 10.6% while Honda faired slightly worse at 12.9%. The Koreans weren't spared from the carnage either, Hyundai slid 8.5% and Kia was down by 8.4 %.

The blame is being placed on bailout talks that collapsed between Republicans and Democrats in the Senate, as the several Republicans raised objections to the bill passed in the House of Representatives. One of the key sticking points was the lack of UAW concessions in pay, a move that would have brought their wages more in line with those paid by Japanese car manufactures.

One of key factors that has investors concerned is that many suppliers make parts for more than one car firm, if one of the supplier's major buyers defaulted on payments it could force the supplier to shutdown or layoff employees which could effect production of products that other automakers need. This could lead to a ripple effect which could cause bankruptcies to spread across the whole industry causing both carmakers and suppliers to go under, and prolonging the global economic downturn.

Adding more pain to a string of bad news is that the U.S dollar tumbled even further against foreign currencies, and new unemployment benefit applications surged to their highest levels since November 1982.

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