By on November 30, 2009

Maybe they should have kept the price higher? (courtesy:tsikot.com)

Japans currency rose to a 14-year high against the dollar last week, prompting fears that the island nation’s exports could be dramatically affected. And no firm stands to lose as much Toyota, which had been operating under the highest assumed exchange rate of any of Japan’s auto exporters. Reuters reports that ToMoCo had pegged the rate at 90 yen to the dollar, some five yen higher than rivals Honda and Nissan. With the Yen trading at 86.29 to the dollar, that assumption could add up to big losses: Toyota reckons that for every one yen drop against the dollar, operating profits will decline some 30b Yen due to the fact that it exports over half of its Japanese-made automobiles, most of which head to market in the US. Aizawa Securities analyst Toshiro Yashinaga explains that Toyota, more than any other Japanese firm, is riding the razor’s edge.

Carmakers that issued big profit warnings last year have set cautious forex assumptions this time, so roughly speaking the current rates are within expectations. But there are views that the dollar could sink even further in 2010, to the 70s (yen), and in that sense Honda and Nissan, which are relatively strong in emerging markets, are in the winning camp

Japan’s government has thus far resisted calls to intervene in the Yen’s exchange rate. As if Toyota’s heavy exposure to the moribund US market weren’t bad enough, exchange rate uncertainty could make Toyota’s second-straight loss even worse than expected when the firm announces its fiscal year-end results in March.

Get the latest TTAC e-Newsletter!

28 Comments on “Strong Yen Spells Big Trouble For Toyota...”


  • avatar
    carguy

    A weak Yen would be a blessing – it’s the weak US$ that is causing Toyota problems.

  • avatar

    Yeesh… headline corrected!

  • avatar
    mjz

    They’ll be crying in their sake….

  • avatar
    mikey

      Up here in great,not so white north,the Loony and the Greenback are far too close for comfort. Of course, we are Canadian,and we play by the rules,fluculations in the curency are something we have lived with,for quite some time. Maybe the Japanese should take a page out of our book,and suck it up eh?

  • avatar
    mcs

    Hasn’t the Korean Won fallen about 20% over the last two years against the dollar? Another advantage for Hyundai.

  • avatar
    John Horner

    Toyota is being very foolish in shutting down NUMMI. NUMMI is right in the heart of one of Toyota’s biggest markets and does business using the American Peso, er, American Dollar. The primary reason NUMMI is being closed is because Toyota doesn’t have the stomach for shutting down more capacity in Japan, and because Toyota can scapegoat GM and the UAW whilst doing it. Toyota imports almost half of the vehicles it sell in the US from Japan (http://www.autonews.com/article/20090518/ANA03/305189947/1197) . The company would be more profitable if it shifted more production into its single largest market, the US.
    http://www.toyota.co.jp/en/about_toyota/in_the_world/index.html for all the data you could want on this topic.
     

    • 0 avatar
      rnc

      I agree about avoiding cost cutting in Japan (not just factories, but tens of 1000’s of window dressing/paper pushers and such that haven’t really worked in years), but Toyota also has an underutilized factory in Texas and one waiting to be opened in Mississippi, both modern, why would you keep a UAW (UAW being the big one I imagine, didn’t toyota in affect just rent the employee’s from GM without being responsible for any of thier benefits?), un-modern factory open when you have new factories that don’t have full utilization.

  • avatar
    rpol35

    Considering how many cars Toyota sells in the U.S. that are made in the U.S. in such places as Georgetown, KY; Princeton, IN and San Antonio, TX, I wonder if the weak dollar will really matter? If their cost for vehicles like the Tundra, Camry and Prius are U.S. currency based maybe it won’t matter so much.

    • 0 avatar
      rnc

      P&L is in Yen and majority of the cost structure is in Japan.  Example, you sell car for $20k, lets say it cost you $18k to make (in US), that’s $2k profit, say the exchange is 100/1, that gives you 200k yen, the rate changes to 80/1, that gives you 160k (40k less to cover expense besides manufacturing).  Given that half of Toyota’s US sales are imported from Japan, run the change on that and it gets worse.

    • 0 avatar
      Steven02

      Recall that the San Antonio plant isn’t operating at capacity.  Toyota’s push into the large truck market has been slower than they expected.  Also, note that many of the Lexus brand models are imported.  Luxury cars usually have bigger margins which are being slashed by the exchange rates.

    • 0 avatar
      John Horner

      Nearly half (45%) of Toyota’s US sales are of vehicles imported from Japan. Even for the vehicles Toyota builds in North America, many of the engines, transmissions and other components are still imported from Japan. Toyota does a good PR job of getting more credit for its North American manufacturing than is backed up by the reality.
      In 2008, Toyota built 5.16 million vehicles in Japan, but only sold 2.19 million of them inside the country. The majority of Toyota’s Japanese production output is exported, and by far its biggest market is the US.

       

  • avatar
    Hank

    Does this not also possibly speak in some way to Honda’s Ito’s comments on resources and DI?

  • avatar
    Stingray

    This people is not THAT bright after all.
    Good to know it.

  • avatar
    Omoikane


    John Horner,
    The main reason for Toyota “shutting down” NUMMI is because remaining there means negotiating with GM.  As Opel and SAAB “negotiations” proved once more, nobody in his right mind would want to have anything to do with GM and the best thing to do is run away from them as fast as possible when given the opportunity. GM had already announced they are not going to contribute to severance pay for NUMMI’ laid off workers! I’m pretty sure GM will love Toyota get bogged down in endless and useless “negotiations” about the ownership transfer, environmental liabilities included.
    The unknown environmental liabilities are the second reason for running away. NUMMI sits on a piece of real estate polluted by GM for 40 years before becoming NUMMI. It may take a few billions to clean up to California standards.
    The third reason is the high cost associated with NUMMI’s presence in California and NUMMI’s status as a unionized plant.

    As of October 2009, only 34% of Toyotas sold in North America are made outside N.A.
    Toyota’s line-up in North America contains 27 vehicles (Lexus included).
    With the exception of Prius and maybe Yaris, all vehicles of significant sales volume are already made in North America.
    “Shutting down” NUMMI has nothing to do with “Toyota doesn’t have the stomach for shutting down more capacity in Japan”.
     

     

    • 0 avatar
      Steven02

      I am not sure where you get the 34% number.  Through 2008, Toyota imported about 45% of its volume into North America.  Almost all Lexus models are imported.  While I do not necessarily think Toyota needed NUMMI, because of extra capacity already available, Toyota does import a large amount of its models.

    • 0 avatar
      John Horner

      NUMMI was left with “old GM” and wouldn’t involve negotiations with the same people running the Opel and Saab circuses.
      It is true that in the most recent quarter Toyota’s imports dropped dramatically from 2008’s 45% level to only 34%, and yet how many people realize that over a third of what Toyota sells in the US is assembled in North America?
       

  • avatar
    Lumbergh21

    “Strong Yen” really means weak dollar in this context, which spells bigger trouble for anyone paid in US Dollars.

  • avatar
    jmo

    “which spells bigger trouble for anyone paid in US Dollars.”

    Really, how do you figure?  Seems Airbus employees have much more to fear from a weak dollar than Boeing employees.

  • avatar
    PeteMoran

    Geez, people don’t have a clue; a weak US dollar is good for the US, people ought to welcome it.
     
    If you think (hope?) local manufacturing has a future in the USA, then a weaker dollar is what’s required.

  • avatar
    Lumbergh21

    The weaker the dollar less it buys.  That $200 Blu-Ray player now costs $240 (or stays at $200 rather than dropping to $160).  A weak US dollar means reduced buying power

  • avatar
    Omoikane

    STEVEN02,
    here is the link for Toyota’s october sales. That’s where the 34% comes from:
    http://pressroom.toyota.com/pr/tms/document/October_2009_Sales_Chart.pdf

    Also,
    once the ongoing Tacoma project is completed in Texas, that plant is going to have to run overtime to satisfy the demand for Tundras and Tacomas.

    • 0 avatar
      rnc

      Omo is correct regarding Toyota’s import %, however that is a recent trend as NA factories are running flat out and thier JPN factories are running way under.  It is not profitable for them to import cars (same example as above say 185m yen to manufacture a car in Japan, sells for $20k in US, at 100/1 exchange, they make a profit, at 90/1 they are selling at loss at 80/1 they are selling at a significant loss).   

  • avatar
    imag

    Toyota reckons that for every one yen drop against the dollar, operating profits will decline some 30b Yen due to the fact that it exports over half of its Japanese-made automobiles, most of which head to market in the US.
    This sentence is not making any sense in context.  If they are selling Japanese cars in the US, then a drop in yen would increase, not decrease profits.   I see the headline changed – was this a typo as well, or am I missing something?
     

  • avatar
    Lumbergh21

    Sorry Pete,

    Unless you are buying anything made with petro-chemicals or made outside the US.  I picked a Blu-Ray player as it is most certainly going to be manufactured and imported from the east.  Would you prefer toaster?  Car? TV? Steel? Etc.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Contributing Writers

  • Jack Baruth, United States
  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Vojta Dobes, Czech Republic
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Cameron Aubernon, United States
  • J Emerson, United States