TOKYO 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 (7203.T), Honda Motor Co (7267.T) and other auto stocks, which fell by more than 10 percent in Tokyo.
The failure of the bill at a late night Thursday vote in the Senate shifted pressure to the White House, with calls for President George W. Bush to consider intervening with emergency funding for the industry suffering its worst downturn in decades.
Analysts and auto executives say bankruptcy at any of Detroit's car makers -- General Motors Corp (GM.N), Ford Motor Co (F.N) 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.
KNOCK ON EFFECT
Japanese automakers account for 40 percent of new vehicles sold in the United States, the world's biggest car market. More than 60 percent of their cars for the U.S. market are built in North America.
Analysts estimate that up to 90 percent of U.S. parts makers supply multiple customers, meaning a shutdown carries a risk of disrupting production all around.
To avoid stopping their assembly lines -- a cardinal sin for automakers -- they may be forced to extend financial aid to suppliers or fly in parts from elsewhere. Both would be costly at a time of scarce liquidity.
"The failure to reach an agreement was unexpected. It's very negative for the auto industry," said Koji Endo, auto analyst at Credit Suisse in Tokyo, adding Japan's leading carmakers were unlikely to step in to rescue their Detroit rivals.
"It would be unthinkable that Toyota or other Japanese automakers would come to the rescue of the Big Three since they are also in a very tough situation."
Toyota ended the day down 10.1 percent at 2,760 yen in heavy trade, Honda lost 12.5 percent and Nissan 11.5 percent. Tokyo's transport sector subindex .ITEQP.T fell 10.3 percent, far worse than the main Nikkei average .N225, which lost 5.6 percent.
GM shares listed in Frankfurt GM.F lost more than half their value in early trading, and Ford (F.F) fell 30 percent.
In South Korea, shares in top automaker Hyundai Motor Co (005380.KS) and its affiliate Kia Motors Corp (000270.KS) both slid more than 9 percent. Seoul's transport sector .KS42 lost 5.1 percent.
"If the bailout plan fails, the whole U.S. industry will collapse. Obviously, Hyundai and Kia may not be able to avoid suffering as well," said Choi Dae-sik, analyst at Hi Securities in Seoul. "The U.S. government should pour money into the industry to prolong its carmakers' lives."
Toyota, Honda, Nissan and Hyundai had no comment on the news of the failed bailout deal.
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Reaction spread to stocks of ancillary sectors such as steel and parts makers, as well as to currency and commodity markets.
The news slammed the dollar, sending it to a 13-year low below 90 yen, fuelling a vicious spiral for export-dependent Japanese automakers.
"It's not just the automakers' stocks," said Erich Merkle, a consultant at Crowe Chizek in Michigan.
"You have to look at the broad index and the banks... the auto industry will not implode in a vacuum; when it implodes it will spread from coast to coast," he said.
(Reporting by Reuters' Asian bureaux, David Bailey in Detroit; Editing by Lincoln Feast & Ian Geoghegan)