Tokyo - Turmoil in the US auto industry was front page news in Japan on Tuesday, where the general reaction was a mixture of skepticism about the outlook for General Motors and Chrysler and concern about the fallout on homegrown brands.
"No escape in site for the current crisis," read a headline in The Nikkei, the country's main business newspaper.
Japan's large car manufacturers - Toyota, Honda and Nissan - are archrivals of GM, Ford and Chrysler, but they also depend on the US market for a huge chunk of their sales.
The US is the world's largest vehicle market, and Japanese automakers have moved a considerable amount of their production there, where they share suppliers with American manufacturers.
"The current 'automotive crisis' affects not just the US market, but is also a direct blow to the world market," the Nikkei said.
President Barack Obama took a tough stance toward GM and Chrysler on Monday, rejecting their recovery plans and essentially giving them a choice to attempt another painful restructuring on their own or seek bankruptcy protection in court where a judge would do it for them.
Obama is popular in Japan, and his moves to right his country's economy have been well-received so far. The president said he was committed to remaking America's automobile industry so it could pump out cleaner and more efficient vehicles - but the feeling in Japan is that things will only get worse for US carmakers.
Investors show mixed reaction
"Both GM and Chrysler lack a trump card, a 'sure seller' such as an environmentally friendly vehicle, and there is no clear recovery in sight" said the Mainichi newspaper.
Analysts said the latest developments in the US did not alter the big picture.
"Actually this is not big news as far as the industry is concerned. There is no change in the fact that the US government is going to have to provide relief," said Mamoru Kato, an automotive analyst at Tokai Tokyo Securities.
In stock trading on Tuesday, Japanese investors showed a mixed reaction to the news.
Toyota, a big rival of General Motors which also runs a manufacturing joint venture in California with GM, dipped 0.6% to ¥3 120.
Nissan fell 3.1% to ¥350. Japan's No. 3 automaker had inked a deal to provide its cars for sale under the Chrysler brand and likewise sell cars made by Chrysler in a joint OEM, or "original equipment manufacture" agreement.
But it has said it will review those plans as Chrysler appears to be nearing a deal with Italian automaker Fiat. The US government has said it's willing to provide another $6bn in financing for Chrysler if it is able to finalise an alliance with Fiat or another company within 30 days.
While Obama gave the automakers a choice, he said he didn't envision breaking up the two auto companies and selling them off to the point where they no longer exist. He also told auto buyers that the government was now standing behind GM and Chrysler service warranties and would provide tax incentives to new customers.
Competing with US government
"Obama is saying that the auto industry represents the spirit of America, so they're not going to let it just disappear," said Fumiyuki Nakanishi, a chief equity strategist at SMBC Friend Securities. "So basically, this means that Japanese and European automakers who will be competing with GM will really be competing with the US government from now."
Japanese names like Toyota have aggressively made the US a core part of their growth strategy. Now they often share the same parts manufacturers with their US peers, leading to fears that a major collapse in the country could hurt operations there.
Toyota President Katsuaki Watanabe said last week he was worried that GM could be forced to declare bankruptcy , and said he hoped the company could continue its operations. Other carmakers have taken a similar stance.
But Kato, the automotive analyst, said Japanese manufacturers are more afraid of the negative fallout from tens of thousands of job cuts, and the ripple effect on the US economy, then of losing key component manufacturers.
"Japan's carmakers have known that US makers are in trouble for some time. They have located other parts makers, who would be happy for the new business, and made contingency plans in case this happens," he said.
- AP