Posts Tagged ‘car parts’

Renesas Bail-Out Bad for Consumers?

Posted by Stephen On Friday, October 19th, 2012

It was recently announced that several of the largest manufacturing firms in Japan are helping the government of Japan to bail out the troubled Renesas Electronics. This rescue group, which includes manufacturers Nissan, Honda and Toyota, is set to contribute a combined total of more than $637 million. In return the group will gain control over the company. There are several other major firms also seeking to invest in the deal.

Why Bail Out Renesas?

Renesas Electronics is the world leader in supplying micro controller chips. Unfortunately, they have endured at least five years of losses, some of which have been extremely severe. They have already laid off more than 12% of their workforce and are making plans to sell off or consolidate more than half of all their Japanese manufacturing facilities. Apparently, the government of Japan considers this company to be “too big” to fail and, we suspect, also does not wish to see foreign takeover of such a key part of the Japanese economy, or to see these jobs exported to cheaper foreign climes.

Renesas deal raises questions

First of all, will this take over be good for the auto industry in general, or just benefit a few favored players? Certainly, Toyota, Nissan and Honda are happy. They are gaining control of a company which supplies vital parts and components, assuring future stability for their operations.

For those locked out the the deal, they could find themselves at a competitive disadvantage. Not so much because the “insiders” will likely get preferential pricing but also because they will have preferred access to a very powerful research and development team could allow them monopolize new technology much faster.

Finally, questions have to be raised as to how this benefits the consumer and Japanese tax payer. Yes, jobs are “guaranteed”. But at the same time, is a company that has been losing money hand over fist for years the kind of business that should be invested in? Rather than preserving a fossil, wouldn’t it be better from the car buyers’ point of view to let the healthy divisions survive without the burden of the loss-making “hangers-on”? And surely we would rather see Toyota, Honda and Nissan source their parts from whoever produced the best parts at the best pricing, whether from Renesas or elsewhere?

Unfortunately, the Japanese government seems to been taking a leaf out of the US playbook to copy the Detroit bailout in their own local economy. And in just the same way, a poorly performing company will be allowed to avoid the opportunity of restructuring and instead become a burden on tax payers, consumers and healthy companies.

Government interference just drags out the pain

It may not be politically easy to allow the effects of competition to take their course, but it is better to get the painful pruning out of the way quickly to let the plant grow back healthy. An excellent example of this can be found in the UK where the car industry went through decades of government support and interference, which resulted in nothing but continued decline. However, no one could look at success stories Jaguar Land Rover or Aston Martin now and say that things have not substantially improved since this interference stopped.