After all, the plant had been there since 1975. What’s new? We soon should find out: Nissan CEO Carlos Ghosn went on a full frontal attack against the high yen, threatened several times that Nissan and most of the Japanese industry would pack up and leave, and delivered an ultimatum: “If six months down the road we are still in this situation, then this will provoke a rethinking of our industrial strategy.”
The Nissan plant struts into the water like a huge ship that is ready to sail. Nearly half of Nissan’s Japanese production rolls off the lines in the Kyushu plant, and the lion’s share rolls right into huge car carriers, docked at Nissan’s private deep-water port. 57.4 percent sailed across the Pacific last year , and on to North America.
Soon, this port will see incoming traffic: As a first step to ward off high yen denominated costs, Nissan will increasingly import parts and components from South Korea and China.
“Importing from China does not automatically mean that we stop buying from our Japanese suppliers. Many Japanese companies have plants in China. What is better than Japanese supplier? It is Japanese suppliers with the benefit of competitive production.”
A few sentences later, it was no longer that clear-cut:
“We will also use our Japanese suppliers in China – or Chinese suppliers, and we will use Japanese or Korean suppliers from South Korea.”
In this case, the high yen makes the imported parts cheaper. But cheaper parts are not enough to withstand the “strong headwinds” that Ghosn mentions again and again as he winds up to the real topic of the day: the obscenely high yen.
“This exchange rate is abnormal.”
“Two months ago, we were fighting the yen at 90, and we were asking for a more reasonable rate. Instead of the rate becoming more reasonable, then yen went to 85 against the dollar, and then 80, and now 77. Common sense tells us what we are seeing today is abnormal.”
After saying several times that the rate is deviant, Ghosn signals what will happen if the currency won’t go where it belongs: In the past, he had committed that a million cars will be built in Japan. That is less than a quarter of what Nissan makes worldwide. But even that will change if the Yen won’t get cheaper:
“This exchange rate is abnormal. If I thought that the exchange rate would remain the way it is today, there would be a lot of decisions made at Nissan today that would be unfavorable to locating car production in Japan. I don’t think this is sustainable for the economy, I don’t think it is sustainable for Japan, I don’t think it is sustainable for the industry. I know how much we are struggling, and how much our competition is struggling, and I don’t think it is going to last. The only question is how long the pain is going to be endured. We are still in the mood of saying that it is going to correct. We are making investment decisions based on faith. But if the exchange rate will remain at this level for a very long time, a lot of decisions will be reversed. We stick with one million cars in Japan because we believe in common sense and we believe that at the end of the day nothing abnormal will remain abnormal, and long-term trends will prevail.”
“Given the choice, we stay in Japan, This is our home, this is our base. If we go, then because we are forced out. If in six months down the road we are still in this situation, then this will provoke a rethinking of our industrial strategy. Personally, I don’t think this will be the case – but I may be wrong.”
Toyota finds itself in a much more precarious situation. Toyota makes nearly half of its global production in Japan, and committed to 3 million units made at home. Spokespeople at Toyota had no fresh comments and referred to past statements by their executives.
At the August 2 financial results press conference in Tokyo, TMC’s Senior Managing Officer Takahiko Ijichi said that 76 yen is extremely difficult and might exceed the limit for domestic production. He had mentioned the importation of parts, but was wary of the quality of the product Toyota gets from suppliers. At the May 11 full year financial results conference, TMC’s CFO Ozawa said that Toyota could break even with 6.6 million units at 85 yen to the dollar.