Asian Car Stocks Tank After US Bailout Bill Dies

Asian auto stocks went into freefall on Friday after the U.S. Senate rejected a last-ditch compromise to bail out U.S. automakers, increasing the chances of bankruptcy among the Detroit Three.

Shares in Toyota Motor Corp, Nissan Motor Co and other Japanese carmakers, already battered a few percent in morning Tokyo trade by a stronger yen, extended falls to more than 10 percent.

"It's a big shock to the stock and foreign exchange markets as the news gives you the impression that they (Detroit Three) may need to go into Chapter 11, which would be the worst-case scenario," said Susumu Kato, chief economist at Calyon Capital Markets Japan, adding the fallout would be a much-higher jobless rate and a bigger contraction in the U.S. economy.

"Once the authorities see such fears, they may come up with a new bailout plan to avoid the worst. But for now, it's a big disappointment."

The yen spiked on the news, fuelling a vicious spiral for Japan's export-dependent automakers.

Toyota fell 10.1 percent to 2,760 yen, Honda Motor Co sank 13.1 percent and Nissan lost 12 percent. Tokyo's transport sector subindex was down 10.2 percent at 0433 GMT, far worse than the main Nikkei average, which lost 5.5 percent.

In South Korea, shares in top automaker Hyundai Motor Co fell 6.9 percent to 43,100 won. Its affiliate, Kia Motors Corp, tanked 6.0 percent to 6,950 won.

"It is really bad news for the South Korean stock market at a time when it had just managed to rebound from a deep trough on hopes that the U.S. economy would not slip into a serious recession and the U.S. auto industry would survive this financial crisis," said Lee Sang-hyun, an auto analyst at Hana Daetoo Securities.

"I believe that U.S. politicians would come up with ways to prevent the Big Three from going for Chapter 11 while asking for more compromises from automakers and unions," he said.

Senate Majority Leader Harry Reid said Republican-brokered talks had faltered, leaving the chamber at a dead end on an approach for extending $14 billion in loans to avert a threatened collapse of one or more automaker.

The White House said it would evaluate its options. Democrats have called for using some of the $700 billion bailout package earmarked for struggling financial institutions to help the auto industry.

"It's a big setback because the markets have been waiting for this to pass," said Joseph Tan, Singapore-based chief Asian economist at Credit Suisse.

"There was positive gains in equities over the past few days based on this... What the failure of this deal does is it will set back sentiment not only in the U.S., but also set back sentiment globally. There is going to be further risk aversion going forward."

Analysts and auto executives have said a bankruptcy at any of the Detroit automakers -- General Motors Corp, Ford Motor Co or Chrysler LLC -- could cause a domino effect of failures at their suppliers, thereby hurting other automakers.

"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," Fukunaga said. (