By on January 17, 2012

Everybody is talking about how much the Euro is losing against the dollar. At closer look, it is not alarming. Even during normal times I have seen lower Euro rates than the current $1.27. But wait until you look at the Euro from a Japanese perspective. (Like the one I have at the moment, sitting in a pittoresk cabin half way up Mount Fuji that could use better heat.) The anemic euro might discourage people like me from coming to Japan. What it really does is discourage Japanese automakers from exporting to Europe. A lot has been said about the strength of the Yen against the dollar. It’s nothing compared to the Euro. Against the Euro, the yen turned into Godzilla. This has Japanese automakers extremely worried. They don’t really know what to do about it.

The Nikkei [sub] made a table of manufacturers’ assumed exchange rates, i.e. the exchange rate that is in the budget, and of the drop in operating profit for each yen below that rate. The table is in yen. The dollar fetches around 77 yen ( it has fetched less) at the moment. If there is 1,000 in the right column, then think there are $13 million.

On Monday, the Euro momentarily dropped to 97 yen in Tokyo, its lowest level in about 11 years. Let’s run the numbers for Toyota. Assume the Euro stays there, that would cost Toyota $779 million in operating profit – in Europe alone. Ouch!

The pain is even greater for small Mazda. Says The Nikkei:

“Among automakers, Mazda Motor Corp. is most seriously affected by the euro’s deprecation because it has no plants in Europe. It exported some 200,000 Mazda 3s and Mazda 2s to Europe, including Russia, in 2010. But because exports are unprofitable at the euro’s current exchange rate, Mazda will try to make due for now with cost cuts.”

Mazda is aiming for a 25 percent cut in procurement and production costs, but that may not be enough. Even for automakers with local production in Europe, the euro is falling faster than they can adjust production.

The low Euro of course is a boon for European automakers, especially for the export-heavy Germans. I would love to see a table that discloses how much more money they make for every cent the Euro sinks, but I have never seen such a table.

If you look closely, and with an open mind, you see something else that is highly alarming: The dollar/euro rate is masking the fact that both are dropping rapidly. Euro and dollar fall, the euro just falls a little faster than the greenback It is like two people who just fell out of another airplane. One watching the other guy, the drop might look benign. Viewed from the bottom (and this is where Japan should be,) it looks like a ….. get out of the way!!!!

Get the latest TTAC e-Newsletter!

29 Comments on “Dropping Euro Makes Japanese Carmakers Want To Throw Up...”


  • avatar
    orick

    so where does the Korean companies (Hyundai/Kia) fit in this? Does this partly account for their rise as well?

  • avatar
    Lokki

    Since we usually go back to Japan for Golden Week we have been watching the exchange rate with horror. (Even more than usual) No one of our acquaintence here or in Japan can figure out why the Yen remains so high, particularly noting that the economy there has been in the dumps for more than a decade, there was an odd little typhoon and nuclear disaster that deeply disturbed the economy, there was a flood in Thailand that hurt more companies than just Honda, Japan’s exports are suffering due to the world’s economic woes…. and on and on.

    Regrettably the best theory that my Japanese brother-in-law and I can come up with is that stinky as Japan’s economic outlook may be, the US and Europe stink worse. THAT my friends would be very very scary if we were right.

    • 0 avatar
      jmo

      there was an odd little typhoon and nuclear disaster

      That would tend to strengthen the yen as companies like Tokio Marine liquidate overseas assets to pay Japanese policy holders.

    • 0 avatar
      gogogodzilla

      As long as their central bank keeps a tight rein over the actual number of yen out there, they can keep the yen high in value (ie: if there aren’t very many yen in the market, each one is worth a higher value)

      So the easiest way for Japan to drop the yen’s value is to simply open the floodgates in regards to moneyprinting, aka: quantatative easing (QE). Just like the US and how Bernake(sp?) has flooded the world with dollars in our QE1, QE2, and soon to come QE3.

  • avatar
    NMGOM

    What is the real problem here?

    If the yen too strong, then what prevents Japanese auto makers from rapidly opening production facilities in Spain or Italy, both of which face poor economies and rising unemployment?

    The Japanese did that in the US as a hedge against the strong yen, and very successfully, too.

  • avatar
    NormSV650

    Tsunami, earthquake, recalls(Honda/Toyota), now Euro? I guess it’s a good excuse when your product is degrading.

  • avatar
    krhodes1

    Luckily, the Europeans don’t seem particularly interested in Japanese cars. After all, unlike the US they have historically had excellent local choices.

  • avatar
    VanillaDude

    This will not end well. There is too much debt to absorb and we will continue to see global markets dropping, hopefully, not in free fall, but in downward steps with plateaus along the way. It will take a decade before this gets resolved. I hope only a decade. It could actually take longer.

    Nothing will appear stable for a long time even when we reach bottom, we won’t know it for a while.

    We are living through a repeat of the Great Depression of 1872-1896.

    • 0 avatar
      johnhowington

      quantitative easing will take care of everything my friend, japan has done it for years and will continue to chug right along. Bernanke is a novice but is learning.

    • 0 avatar
      sportyaccordy

      Western central banks are hoping to print their way out of it all. We will see what happens.

      I’m still mystified at why the yen is so high. They had this problem in the 90s too and it damn near sunk the Japanese auto industry. Remember the $60K Supras? The thing that’s mystifying is I think they are employing the same devaluation strategies as us (zero percent central interest rates etc) only they have been at it for close to 20 years compared to our 3-4. Any ideas?

    • 0 avatar
      forraymond

      It took politicians with BIG balls to get the World our of the Great Depression.

      Looking around today, I do not see such.

  • avatar
    The Doctor

    I guess Nissan is feeling pretty pleased with its Sunderland plant…

  • avatar
    slance66

    The currency has less to do with the economy in the respective regions than with monetary policy. The U.S. has embarked on an inflationary policy to print money (QE1 and QE2, with QE3 in the works). Europe will need to do the same to monetize the debt from the bailouts. Japan has a tighter monetary policy, despite the other problems.

  • avatar
    Secret Hi5

    The epidemic of “make due” is alarming.

  • avatar
    John

    Amazed that two people, including one with a “Japanese brother-in-law’ Say Japan had a “typhoon and nuclear disaster”. Folks, it was a freakin massive EARTHQUAKE in the Tohoku area on 3/11, followed by a double tsunami. Get it? An EARTHQUAKE AND TSUNAMI, not a typhoon.
    Baka-jin……………..

  • avatar
    Dimwit

    What it looks like is the europeans are going to get aquired, simply as a cost saving measure.

    Does anyone know which manufacturer has the most modern assembly plants? Best locations? Most talent?

    I would expect everyone except the 3 germans to be vulnerable.

  • avatar
    alluster

    “Dropping Euro Makes Japanese Carmakers Want To Throw Up”. Japanese cars make Europeans want to throw up!!

    All kidding aside, this is a very serious issue for Japanese automakers. Cars assembled locally in EU and USA are not immune either since a lot of parts for these cars come from Japan. All the western economies loaded with debt up to their eyeballs are going to continue devaluing their currency. The US govt which turned a blind eye in the past is now threatening Japan against further devaluations. Japanese car makers might have to consolidate or form joint ventures in other countries to survive. They cant raise prices anymore to counter a strong yen, not in this highly competitive market. Lost market share has never been so hard to recover as it is now. They will have to just suck up the losses and keep market share and hope things turn around in the future.

    Toyota should just buy up struggling Mazda. They will get nice exciting cars that can prop up Toyota’s image, add another 1.5 Million yearly sales vaulting them ahead of GM in the sales race, SciActiv tech, while giving Mazda production capacity in Europe.

    The US with $14T in debt will have to pay $28T if the dollar doubles in value, or pay the equivalent of $7 trillion if the dollar value halves.

    The Yen growth against the dollar/euro is noting compared to how much it has risen against other currencies, especially critical emerging regions like China, India, Russia, South East Asia, Brazil and M East.

    Just the last 6 months, Yen has risen against UK – 8.5%, Swiss – 21%, AUS – 7%, canada – 10%, India – 19%, Russia – 17%, Brazil – 17%, thai- 10%

  • avatar

    When I was in Germany, the 46,000 euro rental car we had was about $75k american. Since it was roughly a 328i equivalent, I drove carefully, wondering how BMW deals with this problem. Clearly they are not alone.

  • avatar
    NMGOM

    alluster…

    You have written a well thought out, very informative, and great comment. Thanks.


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