By on October 18, 2010

For a while, TTAC has been tracking a strange story: Instead of exporting cars, Japanese carmakers (or should we call them factorymakers?) increasingly resort to exporting car factories. The higher and higher yen makes exports prohibitively expensive. On the other hand, a higher and higher yen buys more and more production capacity abroad. From Nissan to Mitsubishi, there is a chorus that sings the song that suddenly, people in low wage countries can make high quality cars.  Now nobody would assume that Japanese carmakers plan a wholesale desertion of the land of Nippon, right?  Wrong.

Today, we find an odd statement in The Nikkei [sub]: Toyota denies that they will leave Japan. At least not now …

According to Japan’s premium business wire, “Toyota Motor Corp is not considering hastily shifting production overseas despite the yen’s strengthening against the dollar, President Akio Toyoda said Monday.” Hmm. Did anyone suspect he would? Apparently, yes.

“We will not readily shift production outside of Japan, except in the most unusual circumstances,” said Akio Toyoda, probably in the direction of the Japanese government.

The most unusual circumstances might already be here. “Theoretically speaking, Toyota cannot afford to compete with its rivals,” Toyoda says.

They can easily compete if they shift production to low cost, soft currency countries, such as Thailand, or straight to the end user markets, such as the USA and Europe. In the latter case, the problem of how the foreign currency looks when converted into Japanese Yen remains. For that problem, there is another solution, which nobody dares to utter: Shift the headquarters abroad.  A few years ago, large German companies made noises about moving their HQ into lower tax countries. Opel (make that GM Europe) actually moved to Switzerland. The German government got the message.

The Japanese government (with which the carmakers are a bit at odds) is probably thinking about what to make of Toyoda’s not so subtle hint.

PS: Did I mention that anyone who babbles about a soft Yen should have his head examined? Just in case I didn’t, I mention it again. Long term hospitalization is advised.

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25 Comments on “Will Toyota Leave Japan?...”


  • avatar
    Cammy Corrigan

    I don’t think Toyota will launch a full scale exodus of Japan for the following reasons:
     
    1. To think that Toyota would pack up their factories, make thousands of people unemployed and then expect those same people to buy their products which were imported, a bit far fetched. Not impossible, but unlikely.
     
    2. To do all of the above and expect the Japanese government to be OK with it, is, again, unlikely.
     
    3. Because Toyota shifts production abroad, it doesn’t mean that production can’t come back. We forget that Toyota is famous for its flexible production system, which means it can shift production anywhere it likes, faster than most car companies.
     
    I think Toyota are firing warning shots to the Japanese government. Whether the Japanese government listens is another story. They’re busy playing “who’ll be prime minister this week?”

    • 0 avatar
      Vega

      1. To think that Toyota would pack up their factories, make thousands of people unemployed and then expect those same people to buy their products which were imported, a bit far fetched. Not impossible, but unlikely.
      Japan is a shrinking market. It’s losing significance by the day.

    • 0 avatar
      John Horner

      Toyota is going to have to reduce its exports from Japan. I suspect that in the years to come, Toyota will maintain sufficient Japanese production to serve the home market, but not for exports.

  • avatar
    Robert.Walter

    Warning shots they are Cammy, but I think in the quote “We will not readily shift production outside of Japan,” the operative word is readily.

    “Opel (make that GM Europe) actually moved to Switzerland. The German government got the message.”  Bertel, this was during the time that Lou Hughes ran GME.  I recall seeing several slots in the P-garage of Zurich International Airport marked with the GM logo: alone among them was one marked “Hughes.”

    Some famous US industrial companies abandoned their homes and moved their corp hq’s to Bermuda to save on taxes (Ingersoll-Rand and Tyco are two of them), but now many of these companies flee Bermuda for Ireland in-order to get an even better tax-rate from within EU borders.  (If you could-set up a tax-haven in your apartment in China, I bet they would request the name of your nearest “Attaché Commercial”!)

  • avatar
    postman

    1. To think that Toyota would pack up their factories, make thousands of people unemployed and then expect those same people to buy their products which were imported, a bit far fetched

    They did just that in the U.S.

  • avatar
    M 1

    Enact the FairTax and they’ll flock to the US in droves. And not just token factory placement — whole companies will pull up roots and move here, meaning the profits come here, not just factory wages.

    • 0 avatar
      OldandSlow

      http://www.fairtax.org/site/PageServer?pagename=about_basics_main
       
      You know that with all the sausage making that goes on in the US Congress – lobbyist and corporate contributors – this could be messier than it appears in B&W.

  • avatar
    Zackman

    Well, that settles it. Welcome to the USA – a proud, third-world country, home of some of the cheapest labor this side of Indonesia.

    Of course, I’m being satirical and simple-minded, but what happened here has happened in Japan, and, I’m afraid (for the Chinese, anyway), it’ll happen to China, then Korea. Now what? Well, we can start all over again in a few years. The fat-cats always get theirs and the workers – well, we know what they get. That’s not a socialistic statement, either.

    Someday, we may make our own stuff again.

    • 0 avatar
      Educator(of teachers)Dan

      You’re right.  That’s not a socialist statement to anyone who understands world history.  I am teaching a class on Comparative Government at a local branch of UNM and while studying Russia and China, it occurred to my students that China is more capitalistic in many respects than Russia, which supposedly abandoned communism back in 1991.  Neither place is free, but it is interesting to look at the fate of the worlds two largest “socialist workers” paradises.

    • 0 avatar
      Zackman

      Very good, Dan. The Chinese were/are “communist” in name and politics only. For many years, they know how money talks and are very good at business, not necessarily having the best “scruples”, as many have found out – they smell a way of making a buck and they run with it, patents, laws, be hanged! That’s a simplification, of course, but it was the source, I believe, of statements made many years ago of westerners not being able to figure out the mysterious “oriental mind”.

      I leave a lot of comments since joining this site because of you, plus the regular contributors, my love for cars and how the auto industry shapes/tears down lives, plus it’s a great deal of fun. I know enough about things to be dangerous and enjoy the insight others contribute.

    • 0 avatar
      Paul Niedermeyer

      Dan, I said the same thing back in the eighties, based on my experience working with Chinese then. Looking back now, there’s no question of it now.

    • 0 avatar
      OldandSlow

      Think of the enormity of it. There must be at least a hundred million small businesses in China right now.
       
      Compare that to the current population of Russia.

  • avatar
    ash78

    I can easily see production being diversified across different economies, but not sure an official HQ move would be good politically.
     
    Carlos Ghosn effectively runs much of Nissan and Renault from Nashville, but not without a lot of travel to different sites. At some point, that travel becomes taxing on people’s time and the company’s budget (no matter what anyone says, the internet still hasn’t replaced the political elements, nor the attention to detail, that comes with a person’s physical presence).

  • avatar
    obbop

    Learn dumpster diving etiquette before delving into the delicacies within.
    It is a tough breed increasingly entering the ranks of the desperate filling the nooks and crannies of the declining USA.

  • avatar
    John Horner

    It would be interesting to see what the global trade dynamics would be if China pegged its currency to Japan’s Yen instead of the US Dollar.

    • 0 avatar
      L'avventura

      There’d be no point,

    • 0 avatar
      L'avventura

      *post got cut off*
       
      There’d be no point, China pegs their currency to the dollar because its the world reserve currency.  Major resources, such as oil, are denominated it dollars.  One way or the other, China will need to handle dollars if its to trade in those resources.  Now it your suggesting what would happen if the dollar ceases to be the world reserve currency?  Then it would be devastating for the US.

  • avatar
    L'avventura

    Toyota will never leave Toyota City, much less Japan..  The connections they have in the city and to Aichi are too strong.  Moreover, Toyota is a conservative Japanese company, they don’t make radical moves.
     
    Moreover, a drop in corporate tax is on the agenda in Japan, along with a raise in consumption tax, So its even more unlikely being that Toyota is a pillar member of the Keireidan.
     
    As far as production, the strong-yen will likely mean a global diversification of production.  Toyota relies largely on temporary workers, the permanent Union workers are usually residents of Toyota City; and they never get laid off.   High-value parts and models as well as JDM-only vehicles will have production stay in Japan, the rest will be diversified overseas.
     
    End of production in Japan is far too dramatic.  What is the more likely is,  much like the Ford F150 has dropped from 75% to 55% of US-sourced parts in the last year,  final-assembly will still remain in Japan and keep the “Made in Japan” label like Ford keeps the “made in USA” for their trucks, but a larger portion of parts will come from cheaper neighbor (Mexico/Thailand).
     
    Let’s keep in mind, ALL currencies right now are undervalued because all nations are going through competitive devaluation of their currencies.  Brazil’s foreign minister recently called this “International Currency Wars” the head of the IMF,Dominique Strauss-Kahn, said that currencies are being used as ‘policy-weapons’, and the World Bank has even this current situation would erupt into a ‘trade war’.
     
    If you’re a Japanese company making long-term investments, you should know that there are going to be massive shifts in global currencies in the very near future.  You can’t bet that currencies will remain at the currently unstable levels.  Next month’s G20 meeting will be have its main focus on competitive devaluation.
     

  • avatar
    newfdawg

    If you look at the population trends in Japan, Toyota may eventually have no option but to leave Japan.  Japan’s total fertility rate dropped to 1.26 in 2005 which is well below the number needed  to maintain population numbers.  There is virtually no immigration into Japan-the country currently accepts 15,000 per year; compounding this is the fact that the Japanese population is aging and if trends continue, experts predict the population will shrink by one third by 2050.

  • avatar

    Nice Zetsubo-sensei.

  • avatar
    Trend-Shifter

    Japan is ahead of the curve compared to it’s Asian neighbors in preparing for the economic shifts in play.  The rest of Asia is locked into the same old thinking of a continuing strong Dollar + a strong Euro while having their own currency weak for their export market.  Over the next few years they will either have stronger currencies in Asia or we will have a currency/trade war.    China is at center stage.  

    Japan understands that trying to predict currency valuations and react is an act in futility.  The time needed to make shifts take too long. 

    In theory currency valuations should correct trade imbalances over time.  So as these happen it can also quickly go the other way.    

    So the Japanese thinking may be why not just establish operations in each key market as a “point of manufactiuring”.  Then change the percentage of production from either Japan or the alternative “point of manufacturing” depending on the currency valuations & commodities at the time.   Now they have a 1-2 month reaction time instead of 1-2 years. 

  • avatar
    mtypex

    I’m more concerned about the fate of the smaller Japanese automakers.  Toyota will be fine.  Yes, they will move more production to other countries, but their heart is Japanese.


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