By on June 20, 2013

Yesterday, the Detroit News warned of a sneak attack by the Japanese on the U.S. auto market:

“Nissan Motor Co.’s take-no-prisoners approach to gaining U.S. market share has the auto industry worried that a price war is brewing that will erode the profit progress made since the recession ravaged auto sales.”

According to the Detroit paper, Nissan’s recent price reductions  are

“the first sign of a Japanese automaker taking advantage of the weakening yen that Prime Minister Shinzo Abe has pushed down to improve Japan’s economy. That currency’s 15 percent swoon versus the dollar since Oct. 31 gives Japanese automakers an extra $1,500 per car they can use to cut prices or offer additional features while keeping prices even.”

It’s only a sign if you are both blind and fact-resistant.

Nissan lowered the price of its Altima by $580, and its sales “jumped 41 percent, surpassing Ford Motor Co.’s Fusion and closing in on Honda Motor Co.’s Accord,” reports the DetN from the price war front.

Joining the militaristic metaphors is Michelle Krebs of Edmunds. Nissan’s price reductions “strike me as a scorched earth policy of going for market share and sales volume at seemingly all costs,” Krebs said.

What they all forget or simply don’t mention is the fact that the Altima, along with  more than 70 percent of the cars sold by Nissan in the U.S., does not come from Japan. The cars are made in North America. The cars are completely decoupled from the yen.  “By 2015, Nissan  aims for 85 percent North American production,” says Nissan’s Yokohama spokesman Chris Keeffe. “We build where we sell.”

Last week in Nagoya,  Toyota’s America-Chief Jim Lentz said the same, and he flatly denied  that the cheaper yen has any influence “either on price or on the equipment level – we price to market, not to a currency rate.”

The fact that a car made in North America can’t get cheaper just because the dollar buys more yen in Tokyo seems to be too complicated for the Detroit paper and its Detroit sources.

Or possibly, both simply trust that they can play the American public for a big fool.

The DetN missed a scoop: The yen actually is nearly 20 percent cheaper than on Oct. 31, not 15 percent, but numbers are not the DetN’s strong suit:

When Nissan shaves $580 off an Altima to get its formerly lackluster U.S. sales going, then that’s a “price war” invl the DetN’s book. When GM takes $5,000 off the price of a Volt, then “Detroit has implemented discounts on some models, such as the Chevrolet Volt plug-in hybrid, and offered promotions such as free oil changes,” writes the Detroit News, reporting live from the alternate reality .

JPY-Versus-USD-Chart-1970-2010

And this is Mulally on drugs: Allegedly manipulated “cheap” yen should be a lot cheaper to trade at “normal” levels

Ford especially has been pushing the tale of “the Japanese manipulate the yen”  for years, even when the yen was obscenely high. It always found journalists to go for the story. Just hours ago, Alan Mulally told Bloomberg that “Japan is “absolutely” manipulating its currency,” and while he was at it, “that Japan is a closed market for U.S. automakers.”

While this inanity may play well in Idaho, neither the Detroit carmakers nor the Detroit News scribes are that stupid. Most likely, they set the scene for bigger discounts and smaller profits, while blaming it on the people they usually blame, the Japanese.

 

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27 Comments on “Detroit News Declares Japanese Price War, Needs New Calculator...”


  • avatar

    It’s absolutely amazing how a gorilla can be used to automatically insult/inspire fear about any race or ethnicity.

    • 0 avatar
      old fart

      You do know that’s a propaganda poster from WW-2 ? It’s imperative to have your government to instill fear in the masses against whomever your fighting at the time, there were lots of posters for each enemy we were fighting, no longer PC in our world.

      • 0 avatar

        You are not dealing with an 18 year old pimple face. I know what that is, and it was carefully chosen.

        So if that poster is no longer PC, then what about that hobnailed propaganda war?

        If that poster upsets the tender feelings of the PC crowd, then I will look for more. There are piles.

        Besides, these posters were not made to “instill fear in the masses against whomever your fighting at the time.” They were made to dehumanize the enemy, so that he could be killed without remorse.

      • 0 avatar

        Lighten up people. The poster is funny and attention grabbing. It is so over the top for our times nobody can take it seriously.

        • 0 avatar
          VA Terrapin

          That poster is definitely a silly looking, over the top, dated artifact by today’s standards.

          Ed, what you don’t seem to get is that 21st century versions of propaganda similar to the poster above exist and are meant to be taken seriously.

    • 0 avatar
      Zackman

      I crack up at those old WWll propaganda posters! Bring ‘em all on! If that poster above insults our Oriental friends, then show the German ones – they were white, remember? Nobody’s immune.

      Have fun!

      “PC” to me is a computer. Period.

      • 0 avatar
        VA Terrapin

        What’s not so funny was that during World War II, many thousands of Japanese Americans who did not show allegiance to Japan were interned without regard to their due process rights because of their ethnicity. How many German Americans or Italian Americans who did not show allegiance to Germany or Italy were interned without regard to their due process rights?

        • 0 avatar
          jetcal1

          Approx 11,500 Germans and German-Americans and approx 500 Italians and Italian Americans. And they did not get the payments like the Japanese Americans.
          War really sucks. And what seems right at the time might be looked at differently after time.

  • avatar

    Nissan’s corporate bottom line isn’t “decoupled from the yen”. The currency swing does in fact given them room to choose thinner US dollar-denominated margins, no matter where the cars are made. More yen for the dollar means they can bring home fewer dollars from their North American operations without taking a bottom-line hit in yen terms.

    • 0 avatar

      That argument will work well with a math-challenged and stoned UAW worker, but not with me.

      Nissan runs at a 5.4 percent gross margin. All else being equal, on a $20,000 Altima, that’s $1,080. If the yen swings 20%, that’s $216 more on the books. In reality, it’s much lower.

      That’s no budget for a price war.

      • 0 avatar
        rpol35

        Not exactly, it’s $216 more on the books at a 5.4% operating ratio. Applied against a $20,000 selling price, it allows a price reduction of $4,000 (20%) or a $16,000 selling price while still sending the same net back to Mother Japan; plenty of budget for a little market share inprovement via a price reduction.

        Is it a price war? No, price wars involve predatory pricing which trashes everyone’s bottom line; guy with the deepest pockets or longest line of credit wins a phyrric victory. This is just Nissan taking advantage of currency differentials while protecting their bottom line and improving (hopefully for them) their market share.

        • 0 avatar
          Vega

          You’re pretty far off there. For a car manufactured in the US, both yen revenue and yen production cost increase when the value of the yen falls. The margin as a percentage of sales remains the same, the operating ratio does not change. This is called translational currency exposure, Bertel’s calculation was right.

          • 0 avatar
            rpol35

            Completely agree, the operating ratio would not change (I think I stated that the ratio stays at 5.4%).

            But doesn’t your arguement support exactly what Rosevear stated, “Nissan’s corporate bottom line isn’t ‘decoupled from the yen’” which is where Bertel so rudely disagreed with him. Admittedly the tax implications referenced by another poster complicate the pure ratio comparison.

        • 0 avatar
          L'avventura

          To extrapolate on what I wrote below.

          Large multi-national companies don’t operate on a real-time basis where margins are thought of that way. Keep in mind, any dollar repatriated back to Japan incurs a large taxation and penalty of exchange rate.

          If thought through a margin perspective, any shift of weakening yen value is completely lost when taxation and FX costs are considered.

          This is why companies like Toyota have had their Japanese arm operating at a loss for such a long time, while the company as a whole made a profit. Money is usually kept overseas, and usually re-invested overseas.

          Nissan making dollars doesn’t mean that money goes to Japan, they usually stay in the US, are reinvested, or they may go to France or elsewhere if events demand. But margin thought of through just a yen-$ perspective is ignoring all the other factors that go into a multinational company.

          The real benefit of a weak yen is that Japanese-made goods become cheaper. For Japanese companies with large production overseas the weak yen is actually hurtful (meaning goods back home, and energy prices, become more expensive).

          The reality is multinationals are “decoupling” because exchange rates have been so volatile over the last decade. The risk of FX fluctuations is too high where most companies have been moving production of cars to where they are selling them instead of using Japan as a global manufacturing hub.

          So they are also “decoupling” margins from FX.

    • 0 avatar
      L'avventura

      Its not that simple.

      Repatriation of money (Nissan bringing yen back home) is heavily taxed by the Japanese government. Most multinational companies keep profits overseas until opportune and absolutely necessary times.

      Let’s put it this way, Sixty of the US largest nonfinancial corporations kept $166 billion in cash outside of the U.S. This money is from profits generated overseas and is instead used in future oversea investments and M&As.

      Japanese companies are even more cautious with keeping large stockpiles of cash; the repatriation levels of money are comparatively low. Japanese companies have $2.4 trillion in liquid assets (cash, deposits, money-market shares) at home and abroad. This is money the size of Italy.

      http://www.bloomberg.com/news/2013-06-19/japan-inc-sits-on-italy-sized-cash-pile-as-abe-urges-investment.html

      These sort of shifts in Japanese yen don’t have any significant impact on margin for largely American-made cars owned by a Franco-Japanese company. This certainly was not the case for Nissan’s price adjustment for the Altima.

  • avatar
    thegamper

    I believe the yen is currently trading at or below historic levels. Japan is definitely manipulating its currency, they make no bones about it. Helping its exporters is a benefit of that policy, but not necessarily the intended goal. Japan has been in a deflationary spiral for many years and the currency manipulation was intended to stimulate the economy. Lets not forget, that the US has added more new money during the great recession (via quantitative easing, i.e. printing money) than any other country in the world me thinks. Our inflation is in the pipeline and will reverse the yen’s slide on the dollar to some extent, so buckle up.

    • 0 avatar

      Kindly peruse a long term yen chart:

      http://www.forexblog.org/wp-content/uploads/2010/10/JPY-Versus-USD-Chart-1970-2010.jpg

      1970, the dollar bought 360 yen.
      Today, it buys 98 yen.

      In the grand scheme of things, the yen is outrageously expensive. The chart also tells you that the 120 level should be the normal, at least in this millennium.

    • 0 avatar
      Vega

      Fortunately exchange rate analysis can be done with real data as opposed to faith and believe. And the data tells a different story: Despite losing 21% since the all time record (!) heights of Jan 2012 the yen is still 9% above the 20Y average level. So if Japan is manipulating its currency (which there is no indication for), it’s doing a piss-poor job…

      Strangely enough, when the Yen rallied 60% from 2007 to Jan 2012, making profitable car export from Japan nearly impossible, nobody complained about the Dollar weakness being an unfair advantage for the US.

      Cherry picking data to fit a preconceived narrative is intellectually dishonest. You could also call it lying.

  • avatar
    TW4

    Bertel, you’ve merely proved Mulally’s point. The yen appreciated sharply for a period of several decades as Japanese exports to the US grew. Since the liquidity trap, the yen has basically leveled off at 110, though the US trade deficit with Japan has grown. Japanese deficits are part of the leveling effect, but Japanese investors hold over $1T in US treasuries. I don’t know why you and your Japanese handler’s tempt fate. If US institutions purchased Japanese treasuries en masse, Japan would cease to exist. What are you complaining about really? American charity is not boundless?

    Despite Japan’s obvious currency manipulation, I don’t think these price changes are driven by the USD-JPY exchange rates, and I take a great deal of pleasure in seeing the industry squeal when someone messes with their collusion and price fixing. The only thing that could make me happier than news of Nissan breaking ranks would be news that the $580 is coming out of the dealers’ pockets.

    BTW, Edmund’s is not being hypocritical. AFAIK, the didn’t criticize the Versa for being cheapest. Analysts are panicked about “price wars” in high volume segments. Volt is not a high volume model.

    • 0 avatar
      Vega

      No it hasn’t “levelled of at 110″. Check the chart http://www.forexblog.org/wp-content/uploads/2010/10/JPY-Versus-USD-Chart-1970-2010.jpg

      It is now at 98. Was in the 70s in early 2012.

    • 0 avatar

      There is a chart in the article. That chart doesn’t lie. The Fed made it. As Vegas said: “If Japan is manipulating its currency (which there is no indication for), it’s doing a pppp-poor job…”

      However, there are many people who simply believe what they want to believe, or rather, what other people want them to believe.

      My Japanese handlers? Please name them, take them back, or be fired. It’s one of the three. You have 30 minutes.

  • avatar
    sirwired

    I know family sedan shoppers are price-sensitive and really they are nearly all “good enough”, but does $500-ish bucks really qualify as a “price war” under any definition?

  • avatar
    philadlj

    I lost a lot of respect for the hood(bonnet)-kissing Mullaly. I’m getting awfully tired of companies complaining about Japan’s closed market for cars. They don’t need American cars. Idaho grows their own potatoes. Wisconsin makes their own cheese. And Japan makes their own damn cars. What’s the problem?

    But why do they get to sell so many cars in the U.S. but not vice versa? Simple: Japanese automakers never utterly, decisively dropped the ball in their domestic market the way American automakers did during the malaise era.

    They’re also one of our closest and important allies. I would think recovering, strengthening Japanese economy serves our strategic interests far better than selling a few more Fiestas in Tokyo.

    You’re also talking about a country that recently suffered one of the worst natural disasters in modern history. Imagine if Mullaly made such inflammatory comments two years ago. They wouldn’t just be stupid, they’d be disgraceful.

    • 0 avatar

      This whole thing is a huge embarrassing disgrace. They beat the “Japan is closed and manipulating currency” drum knowing very well that it isn’t true. The folks at Ford aren’t stupid. They play to two audiences that swallow the lies eagerly: The unions at home (nothing beats a good external enemy) and Washington.

      That whole Japan deal is a giant red herring. The D3, but most of all Ford, are scared to death that the chicken tax falls. The chicken tax guarantees huge profits in trucks. Without it, the D3 would be long dead. But it’s much easier to attack the crafty Japanese than to defend the Chicken tax.

      Fact is, the D3 are not interested in the Japanese market. They aren’t even trying. I don’t blame them for that. Japan is a market with no growth, it has too many manufacturers, the market is well served with any car it wants, entry is expensive, customers are fickle and demand super-high quality. It is much easier to bet on emerging markets, and to grow with the market than. Ford and GM know that.

      But it’s much easier to say “look at our measly sales, there must be discrimination somewhere” and to blame whole countries and their people for your failures, than to simply pack up and leave.

      This affair is very shameful.

      It would suit Ford and GM much better to adopt the very pragmatic European stance. They say: “So, Japan, your import tax is zero, and ours is 10 percent. You want all taxes to drop? What do you have to drop? What can we get from you in return, Japan?”

      As far as Mulally goes, while at Boeing, he never complained about the currency. He loved it that the yen got stronger, it bought more planes. Japan is nearly exclusively Boeing country. I hear this might change soon, and the disgraceful behavior of the D3 and their Washington cronies is one of the reasons.

  • avatar
    Big Al from Oz

    The US is under attack again? It seems to be the mantra for its existence. What about the US with its recent policies managing its ecconomy. Is that currency manipulation? Look at what it has done to our manufacturing sector in Australia.

    Hey, but when you guys act in a similar it is for the good of the world.

    Not mentioned the 30% of Japanese vehicles moved across the Pacific, the cost or transportation, which runs into several thousands of dollars.

    If the Big 3 can’t compete then maybe they should sit down with the UAW, management and government to find ways to increase their competitive edge.

    Maybe a chicken tax on car imports?

    I do think the US relies on scare tactics to mobilise and modify paradigms. The continual perception that US is under threat so much by foreign companies/countries is wearing thin.

    There are real threats and not so real threats, this isn’t a threat, just a wake up call.

    Maybe Detroit should just make the hard decisions with the government and UAW. Get on with it and stop whining, have a look at restrictive UAW workplace practices and become competitive.

    The foreign manufacturers in NAFTA don’t seem to have this problem or did they require bailouts during the GFC.

    And try and call me anti American again, I’m not I’m just a realist.

  • avatar
    ccode81

    Then why did they sold stakes in Mazda, if Japan is such a nice base camp to attack other markets.
    At least, they sold it at the timing of very favorable currency rate in 2010…


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