PROGRAMS FOR JAPAN'S AUTOMAKERS

UNCLAS SECTION 01 OF 02 TOKYO 000345

SENSITIVE
SIPDIS

STATE FOR EAP/J, EEB/TRA, EEB/TTP/MTAA FOR B. NAFZIGER
STATE PASS USTR FOR R. MALMROSE, W. CUTLER, AND M. BEEMAN
DEPARTMENT OF COMMERCE FOR K. ROTH AND D. BARZDUKAS

E.O. 12958: N/A
TAGS: EIND ETRD SENV PREL WTO EFIN ENRG JA
SUBJECT: PROGRAMS FOR JAPAN'S AUTOMAKERS

REF: A. STATE 4753

B. TOKYO 286

C. TOKYO 174

D. TOKYO 187

E. TOKYO 189

F. TOKYO 219

G. TOKYO 228


1. (SBU) Summary: Although car manufacturers in Japan have
been hit hard by the global economic crisis -- with six of
the country's eight auto manufacturers reporting losses last
year -- none is clamoring for a bailout. The GOJ has adopted
an incremental approach to assist the auto industry with key
meaures falling into two categories: initiatives aimed
directly at auto manufacturers and other, more broadly
focused relief measures. Given the protracted budget debates
in the Diet, it remains uncertain what final form these
measures will take, if approved at all. End Summary.


2. (U) The following points are responses keyed to the
requests in ref A. Refs B - G contains previous post
reporting on auto and related issues.


3. (U) Auto Sector-Specific Initiatives
--------------

-- Tax breaks for environmentally-friendly vehicles:

Lawmakers in the Diet continue to deliberate on proposals to
lower the National Tonnage Tax and the prefectural-level
Automobile Acquisition Tax, two of the nine levies on new
vehicle purchases, by April 2009. Reductions could range
from 50 to 100 percent on next-generation vehicles (e.g.,
fuel-cell, plug-ins, hybrids),depending on the level of fuel
efficiency and emissions. Hybrid and electric car purchases
would be exempt from the more substantial Automobile
Acquisition Tax, which typically equals five percent of the
cost of the vehicle.

-- Funding for next-generation vehicles and fuel cells:

In the FY09 budget which the Diet is now considering, the
Ministry of Economy, Trade, and Industry (METI),in line with
the GOJ's goal for next-generation vehicles to constitute
half of new auto sales by 2020, proposes 29.7 billion yen
($292 million) to introduce and develop next-generation
vehicles and fuel cells. The proposal includes 5.3 billion
yen ($58 million) for the introduction of clean-energy
automobiles, including plug-in hybrids, Clean Natural Gas
vehicles, and accompanying infrastructure such as charging
stations. The METI's budget request also includes 800
million yen ($8.8 million) in new funding for non-feedstock
bio-ethanol production and three billion yen ($32.8
million) for fundamental research on innovative battery
technologies.


4. (U) Non-Specific Industry Initiatives
--------------

-- Fund infusions and government-backed capital stakes:

The Cabinet recently approved revision of the Industrial
Revitalization Law. The amended law would allow the
Development Bank of Japan (DBJ) to take non-voting preferred
equity in both financial and non-financial firms. The DBJ
can provide up to 1.5 trillion yen ($16.4 billion) in
guarantees covering 50 to 80 percent of any losses, which
would be offset through public lender Japan Finance
Corporation (JFC).


TOKYO 00000345 002 OF 002


-- Emergency financing:

The Japan Bank for International Cooperation (JBIC) announced
emergency financing, loans and debt guarantees in December
2008 to companies faced with tight restrictions on access to
credit in developed countries. The Cabinet-approved
temporary measure stipulates the "competent minister in due
course" will identify which industries are having
"significant difficulties... maintaining their international
competitiveness due to the global financial turmoil." The
media report Nissan intends to request 50 billion yen ($54.7
million) in low-interest JBIC loans.

-- Financial support for overseas subsidiaries:

Nippon Export and Investment Insurance (NEXI) began offering
working capital, commercial risk coverage, and liquidity
support for Japanese overseas subsidies in January 2009.
Honda representatives told emboffs it might apply for the
JBIC and NEXI programs (ref B).

-- Wage subsidies:

The Ministry of Health, Labour and Welfare (MHLW) offers a
wage supports for companies whose production and employment
volume have dropped by a specified amount. The program aims
to prevent lay-offs by paying a portion of workers' wages or
training costs during production suspensions. Mazda
reportedly plans to apply for help under this program.

-- Employment support for SMEs:

The GOJ's first supplemental budget for FY08 includes 6.94
billion yen ($75.9 million) in employment support for SMEs.
This figure breaks down to 4.5 billion yen ($49.2 million) to
help SMEs affected by high raw material prices retain workers
and 2.5 billion yen ($27.4 million) to create jobs in areas
with the highest unemployment.

-- Commercial paper purchases:

The Bank of Japan (BOJ) announced January 22 it will purchase
up to three trillion yen ($32.8 billion) in commercial paper
(for large enterprises) and asset-backed commercial paper
(for small and medium-sized enterprises).

-- Purchases of ailing stocks:

The BOJ announced February 3 a plan to purchase up to one
trillion yen ($10.9 billion) in bank shares to reduce stock
market-related exposure risks. Under the plan, the BOJ would
initiate bank-held share purchases through the end of April
2010 and hold them through the end of March 2012. The BOJ
would purchase stocks of listed companies at market prices
based on approval by the Minister of Finance and Financial
Services Agency Commissioner.
ZUMWALT