JEI's Spin on the News

Nissan Motors Seeks JDB Loan

Friday, November 13, 1998

Nissan Motor Co., Ltd. reportedly has asked the government-affiliated Japan Development Bank for financial assistance in the form of a loan said to total around ¥100 billion ($740 million at ¥135=$1.00), although company officials stress that the amount and details still are under negotiation.

Nissan could use the help. Its sales are weak in both the American and Japanese market and it has lost money in most recent years. Its principal banks, Fuji Bank, Ltd. and Industrial Bank of Japan, Ltd., are in less than robust health themselves. In any event, Nissan has never had a connection with Fuji, for example, as close as that between many large firms and their keiretsu bank.

Analysts were quick to compare Nissan's recent action with the U.S. government's role in providing roughly a billion dollars to Chrysler Corp. in 1980. Chrysler not only repaid that loan, it has earned huge profits in recent years prior to its merger with Daimler Benz, which ironically became effective on the same day that the Nissan loan request became known.

For JDB, the loan to Nissan would represent a partial return to the practices of the immediate postwar period, when the bank was created as a means of assisting Japan's postwar reconstruction. Even though its loans were not necessarily large, they were seen as sending a signal that the government looked favorably on the firm and industry in question. In recent decades, the bank — in common with other government agencies — has been at pains to minimize the extent that it attempts to pick winners or to bailout losers. In practice, this has meant that JDB has done very little lending to large manufacturing firms.

Now it appears to be edging its way back into that business. American policymakers, who in the early 1980s debated setting up JDB-type institutions, but ultimately rejected the idea as inconsistent with Reagan-era free market principles, are not likely to be pleased with a large-scale loan to Nissan. They will argue that recipients of loans from JDB or other government institutions pay too little for the funds, conveying an unfair advantage in competition with unsubsidized firms.

Japanese officials could counter that they are merely "doing a Chrysler", albeit on a very limited scale given the fact that inflation rendered the 1980 amount much larger in real terms that the sum Nissan will get. In response, the American side may be tempted to suggest that the Chrysler of 1988 be the model: if competition looks tough, find a merger partner. Given speculation in some quarters that Nissan might end up as part of DaimlerChrysler A.G., the JDB may be sending a signal that such a merger or similar combination will not happen.

"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

TopaaaaSpin Archive IndexaaaaHome