Meltdown 101: Foreign automakers struggle too

[December 23, 2008]  DES MOINES, Iowa (AP) -- U.S. automakers landed a $17.4 billion bailout package from President Bush last week, but carmakers around the world also could use a dose of holiday cheer as 2008 winds down.

Slow sales and tight credit markets are not the sole domain of General Motors Corp., Chrysler LLC and Ford Motor Co., as carmakers from Stockholm to Tokyo report problems of their own in a slumping global economy.

Here are some questions and answers about the state of carmakers outside the U.S.

Q: Which foreign automakers are hurting?

A: Take your pick.

Toyota expects to lose money on an operating basis for the fiscal year ending next March. It has never reported an operating loss in the 67 years it has given such figures.

Its Japanese competitor, Honda Motor Co., expects its profit for the fiscal year ending in March to be less than a third of what it earned last year.

In Germany, BMW said its global sales slid 25 percent in November compared with a year earlier. Daimler plans to cut work hours and lengthen holidays at its domestic plants after its global car sales also fell 25 percent.

The Chinese state media says car sales in the world's second-largest auto market fell 10 percent in November.

Q: What are their problems?

A: Foreign automakers are being hurt by many of the same issues that have crunched sales for their American competitors.

A double whammy of sorts battered carmakers worldwide this year. Soaring fuel prices earlier in the year stoked demand for smaller -- and less profitable -- vehicles. And big industries like car manufacturing aren't nimble enough to adjust to that demand.

"The industry can't shift as quickly as the market shifted," said David Cole, chairman of the Center for Automotive Research.

Then the credit crunch hit, and it became harder for some buyers to find decent financing terms. Consumers also have become more reluctant to make large purchases like cars or trucks during a recession.

Q: So foreign carmakers are in the same boat as their U.S. counterparts?

A: Not quite. U.S. automakers were struggling before the recession hit. They've been contending with a declining market share and seeking relief from huge costs like retiree health care.

Q: Aren't fuel-efficient cars like the Toyota Prius still hot sellers?

A: Actually, Toyota recently shelved plans to build the hybrid at a new factory under construction in Mississippi. Sales of the Prius, which gets 46 miles per gallon on average, sank when the price of gasoline plummeted from the $4-a-gallon range it reached this past summer.

Q: Will the bailout for U.S. automakers give them an unfair advantage competing against their foreign counterparts?

A: Not at all. Cole thinks it will help level the playing field a bit.

He noted that foreign automakers who sell cars in the United States already receive a big helping hand in their home countries, where the cost of health care and pensions often is absorbed across the whole country. Here, companies have to eat those costs all by themselves.

U.S. automakers also are generally dealing with an older -- and consequently more expensive -- work force.

Cole says these added costs for U.S. automakers are akin to trying to run a marathon against someone in track shoes when you have galoshes and an overcoat ... and you're carrying a bowling ball.

Q: Is the United States the only country forking over large amounts of money to bail out an auto industry?

A: Bailouts are popular topics in many countries. Sweden's lawmakers have approved an aid package worth $3.6 billion to prevent a collapse of its auto industry.

Canada just approved emergency loans valued at $3.29 billion to support Canadian subsidiaries of the Detroit Three automakers.

British carmakers also are pressing their government for a bailout, and GM Europe officials have met with German Chancellor Angela Merkel to ask for loan guarantees.

Q: Is the Japanese government planning anything?

A: A strengthened yen has hurt Japanese carmakers because it raises their costs for doing business in foreign markets like the United States.

"That's really impacted the Prius because that technology all comes out of Japan," Cole said.

The Japanese government may intervene to limit its currency's strength; for their automakers, that would have an effect similar to a bailout.

[Associated Press; BY TOM MURPHY]

AP Business Writers Yuri Kageyama in Tokyo; Elaine Kurtenbach in Shanghai, China; and George Frey and Oliver Schmale in Germany contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.