Delay in bailing out Big 3 weighs down stock prices
Written by Writer on Saturday, November 22nd, 2008
Delay in bailing out Big 3 weighs down stock prices
The Yomiuri Shimbun
Stock markets in Japan and the United States have fallen into turmoil, with share prices fluctuating wildly, after U.S. lawmakers failed to quickly assemble an aid package for the embattled Big Three U.S. automakers.
The U.S. Congress on Thursday delayed a vote on legislation to bail out General Motors Corp., Ford Motor Co. and Chrysler LLC, which have been seeking financial assistance from the federal government.
Although U.S. President-elect Barack Obama stressed the need to assist the U.S. auto industry, two months remain before the inauguration of his administration.
Time available to bail out the Big Three automakers is running out.
The Democratic Party submitted the bill to save the Big Three. The legislation is aimed at offering operating funds for GM and the other automobile companies, which may run out of cash reserves around the end of this year. The Democrats intended a vote on the bill to be held as soon as possible, but the Republican Party opposed the move.
The Republicans criticized the bill as sloppily put together and pointed out that legislation providing taxpayers’ dollars for the Big Three automakers to keep them viable for a while would hardly set a course for their financial rehabilitation because sales of cars themselves are weak.
The two sides failed to reach an agreement, and lawmakers decided to return to vote after hearings are held again in December.
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Evolution or extinction
The Big Three automakers have run into financial difficulty due to mistakes in their management strategy, including their slowness to develop fuel-efficient small cars and insufficient reform of their high-cost corporate structures.
Attention is focused on whether the Big Three will take a hard look at those mistakes and include strategic measures plausible enough to convince lawmakers, such as additional drastic restructuring schemes and the development of attractive automobiles, in a rehabilitation plan they are to submit to Congress next month.
If their plan is considered not up to scratch, lawmakers may defer a plan to bail them out with federal money and consider application of Chapter 11 of the federal bankruptcy law, which is equivalent to the Civil Rehabilitation Law in Japan.
That is certain to depress New York stock prices further. Market players are waiting with bated breath to see what plan the Big Three will come up with.
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Onus on government, BOJ
As uncertainty in the U.S. economy increases, the Japanese stock market is becoming more and more unstable, too.
The Nikkei Stock Average had returned to the 9,000-point level, responding positively to the news of interest rate cuts in Japan and the United States, after in late October hitting a record low since the collapse of the asset-inflated bubble economy.
However, this week saw declines to the 7,000 level for three consecutive days. The Nikkei staged a rebound Friday for the first time in four days, but failed to top 8,000.
Individual investors snapped up undervalued stocks, but the rebound was too weak to signal a full-scale recovery of the market.
It may not be easy for the government and the Bank of Japan to deal with current difficult circumstances, which were caused mainly by foreign factors. But they must do their utmost to implement measures quickly to support the economy and stabilize the financial system to prevent further plunges in stock prices.
(From The Yomiuri Shimbun, Nov. 22, 2008)
