The Truth About Cars » Currency The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Tue, 15 Jul 2014 13:19:48 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Currency Ford’s Hinrichs Accuses Toyota of Profiting from Currency Manipulation Fri, 07 Feb 2014 12:00:24 +0000 Dollar vs Yen

In a speech given to an Economic Club of Chicago luncheon held in conjunction with the Chicago Auto Show media preview, Ford Motor Company’s president for the Americas Joe Hinrichs criticized Japan and Toyota in particular for benefiting from currency manipulation. Hinrichs said Ford would “urge Congress to oppose a TPP [Trans-Pacific Partnership currently being negotiated.] if it does not include strong currency disciplines.”

Speaking to Automotive News after his talk, Hinrichs said

“When Toyota came out and said half their profits are due to currency change of the yen, that’s a big deal.  When [Toyota President] Akio [Toyoda] came out in support of [Japanese Prime Minister Shinzo] Abe saying we need a weaker currency, that’s a corporate policy statement.”

The yen has lost almost a quarter of its value against the U.S. dollar over the past year. Toyota estimates that for every yen of value the Japanese currency loses against the U.S. dollar its operating profit goes up by 35 billion yen.


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Akio Toyoda Sees Emerging Markets’ Growth Slowing, Uncertainties in China, Japan Thu, 02 Jan 2014 13:00:58 +0000 TOYOTA/

Bloomberg is reporting that Akio Toyoda, president of Toyota Motor Corp. and scion of its founding family said that a slowdown in emerging markets and uncertainty over demand in both China and the Japanese home market makes 2014 “unpredictable”.

While the weaker yen increased earnings for Japanese exporters, those profits are being offset by slowing demand in India, Thailand, Brazil, and Russia. Japanese automakers also continue to face a potential repeat of Chinese consumers rejecting their products, as happened last year as tensions between those countries’ governments increased over who owns a group of Islands under dispute.

“It may be impossible” to shield against tensions between the two countries, Toyoda had told reporters earlier in December. “But we will work to minimize the impact.”

Slowing sales in emerging markets caused Honda Motor Co. to miss analysts’ forecasts for its first-half earnings this year. Nissan Motor Co., which is looking to make Mexico a hub for exports, reduced projected full-year earnings by 15 percent to reflect slower than anticipated sales in the developing world.

Toyota’s own operating profits were down in Asia, excepting Japan, in the third quarter, as Thailand ended government incentives for first-time car purchases. Akio Toyoda was pessimistic about Japan as well because of that country’s planned increase in the national sales tax rate from 5% to 8%. The Toyota president said, on behalf of JAMA, that automakers would like to see a stable yen since production cannot be shifted around the world as quickly as currency values change. The Japanese currency is currently at a five year low against the American dollar.

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Ford’s Profits in Latin America Wiped Out as Venezuela Devalues Currency by 44% Mon, 30 Dec 2013 13:00:37 +0000 Ford Motor Company assembly plant in Valencia, Venezuela.

Ford Motor Company assembly plant in Valencia, Venezuela.

Ford Motor Company announced last week that instead of making money in Latin America this year, it will likely lose $350 million in the region because the government of Venezuela devalued its currency, the bolivar, by 44%. Ford is currently holding more than $700 million in bolivars that it cannot exchange or repatriate. The Venezuelan government is trying to conserve its hard currency reserves and it will not give Ford dollars for bolivars. FoMoCo, which has built vehicles in Venezuela since 1962 and currently operates an assembly plant in Valencia, really doesn’t have any options other than to write down the loss. The car company can’t very well try to exchange currency on the black market. Other international companies, including Toyota, face similar situations with their operations in Venezuela.


The 44% devaluation in the bolivar is the second this year, following a 32% devaluation in February. Currency controls in place for the last decade have made dollars scarce in Venezuela. Foreign reserves were reported to be at a nine year low this month. With a weak domestic currency and shrinking reserves of hard foreign currencies, companies in Venezuela have had a difficult time arranging imports, resulting in shortages of imported good ranging from meat to tires.


One reason analysts give for Venezuela’s currency issues has been growing government deficits. Government revenues from exporting oil have gone down as the country’s oil fields experience natural decline. The deficits are exacerbated by the government subsidizing the price of gasoline so consumers only pay about 5 cents per gallon, a subsidy that is reported to be phased out to bring the price up to about $1.60/gallon..

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Detroit News Declares Japanese Price War, Needs New Calculator Thu, 20 Jun 2013 12:20:51 +0000

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 .


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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Toyota USA Looking To Go Import-Free? Mon, 21 Jan 2013 14:00:07 +0000

The inevitable march to American-made “imports” continues, as one Toyota official recently declared his desire to see every single Toyota sold in America to be a made-in-USA product.

Although Toyota currently makes about 70 percent of its Stateside product domestically, Bill Fay, Vice President and General Manager of the company’s American arm, said he’d ideally like to see that number expand. Fay spoke to the Detroit Free Press regarding shifting production

“Our intention is clearly to grow that 70% over time…Short term, we are not going to build everything in North America, especially (when) you consider Lexus, which we are shifting more slowly. “Whether we ever totally get there, I don’t know…”

Next up on Toyota’s agenda is a shift in Corolla production, which would see 100 percent of the compact sedans made in Canada or the USA. Concerns over unfavorable wages aren’t the sole reason behind the move either; a rapidly aging workforce and negative population growth means that finding workers for car factories is an increasingly difficult task.

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Are You Ready For: An American Volvo? Tue, 13 Sep 2011 16:01:30 +0000

The national character of auto brands is a tricky thing. For decades, Volvo wore its Swedishness on its sleeve, emphasizing the values that made Ikea, Abba and Swedish porn so popular in the US… even when it was an outpost of the Ford empire. And then the unthinkable happened: Chinese up-and-comer Li Shufu bought the brand and rolled it into his Geely empire. In the world of national-character-branding, being bought by a Chinese firm is something like hiring Casey Anthony as a brand ambassador, or using a mascot called “Mr Melamine Milk” (another nightmare scenario can be found here). So, how does a brand like Volvo, that was built on Swedishness, get past the “China Factor”? By doubling down on Swedishness? How about by building cars in the US?

Volvo’s Stephan Jacoby has opened the door to just that possibility, telling Bloomberg [via Automotive News [sub]]

One weakness of Volvo cars is the exposure to the U.S. dollar, so we are investigating increasing our sourcing in North America. The utmost solution would be to have a North American industrial footprint. We haven’t made up our mind.

OK, so currency exchange is the overriding business factor, but on a secondary level, building cars in the US would override any concerns American consumers might have about buying a made-in-China Volvo. For years now, the industry has fretted that the rise of Chinese automakers would be accompanied by waves of cheap, Chinese-built exports wiping out traditional brands on sheer cost alone. That Li and Jacoby are talking about building a US plant confirms that Chinese ascendancy need not follow the worst possible scenarios of industrial realpolitik. And as Sweden’s other automaker circles the drain, making Volvo a more global brand by assembling in Europe, China and the US is another triumph of reason over “automotive nationalism.”

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Will Rising Euro Push Alfa/Jeep Compact CUV Production To Toledo? Wed, 31 Aug 2011 14:46:08 +0000

Bloomberg reports that Fiat is considering moving production of planned Alfa/Jeep-branded compact CUVs from its Italian Mirafiori plant to the US, as a rising Euro forces tough production choices. Production of some 280,000 units per year were planned to start at Mirafiori in late 2012, but Fiat may now build an as-yet unannounced subcompact there instead. According to Bloomberg’s reporting, Fiat/Chrysler CEO Sergio

Marchionne, while confirming his commitment to invest at the Turin facility, told Piedmont Region President Roberto Cota Aug. 29 that he may change the production plans for the plant.

“Fiat is evaluating which model it will build at Mirafiori,” Cota said after meeting the CEO.

Fiat’s first-half volume in the European market is down 13%, and its market share has fallen from 8.1% to 7.2%, forcing the firm to think hard about its product mix and production plans. A city car would be sold primarily in Europe, and since the Euro as risen 9% since last November when Fiat said it would build Compact CUVs at Mirafiori, it now makes more sense to build global/US-market products somewhere other than Europe. US production would be a huge boon to the reintroduction of the Alfa brand to the US market (led by the new C-CUV), as it would keep prices and profit margins far more competitive.

There’s no indication as yet of where Chrysler could build the Alfa/Jeep Q5/Forester-fighters, but Toledo North seems like the most likely candidate. Not only is the Jeep Liberty (predecessor to the new Fiat-derived Jeep C-CUV) already built there, but Chrysler is already sniffing out incentives to expand to 327,000 units per year.

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Japanese Automakers: Sayonara, Japan Mon, 04 Jul 2011 12:55:22 +0000

Japanese automakers will move their production elsewhere if the yen keeps rising. This is what Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, told The Nikkei [sub] in a very blunt interview.  Shiga, who is also the COO of Nissan, said that power shortfalls and the strong yen are the biggest impediment to Japan’s most important industry.

The industry can work around the power shortages. Last weekend was the first when Japan’s automakers worked. They will instead take Thursday’s and Friday’s off, putting less strain on the grid. That system would work better if other industries would come to similar arrangements, but it works.

As far as the currency goes, the manufacturers can just watch and be sweat even more than what is caused by air-conditioning set to 82 F. Today, a dollar bought 80 yen. That won’t get you far in Japan. Not even to the next subway station.

Said the Chairman of Japan’s Automobile Manufacturers Association:

“It is strange that the government has allowed the yen to rise so high. Ever since automakers’ supply chain systems were damaged, the companies have been thinking about whether they should try to restore their supply chains to their pre-disaster conditions or instead turn to overseas suppliers.”

“It would not be surprising if some Japanese firms changed their procurement methods if things continue as they currently are.”

“No Japanese manufacturer can generate a profit from exports at an exchange rate of 80 yen to the dollar.”

“For years, Japanese carmakers collectively continued to turn out around 10 million vehicles domestically, and that did a lot to help keep the jobless rate from rising to the two-digit level. But people should not be so optimistic as to believe that automakers would never pull out of the home country.”

To make matters worse for the Japanese industry, a free-trade agreement between South Korea and the EU just took effect, helping Hyundai and Kia even more.  The Japanese government could end its foot-dragging at least on that front.

As far as the currency goes, the governmental hands are pretty much tied. The oldest trick in the book is to lower interest rates. If Japanese interest rates would go any lower, you would have to pay the bank for taking your money. Quantitative easing? Japan invented quantitative easing, and look what that did to their currency.

Think about it: Here is a country that never recovered from the crash following the big 1990s bubble. It was hit by what some say was the force of a thousand times the power of all nuclear bombs on earth. Yet, people around the world are buying its currency. Makes you wonder about what’s going on around the world.


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Japanese Automakers And Unions To Government: Lower Then Yen, Or We are Out Of Here Thu, 09 Jun 2011 14:20:49 +0000

In an (especially for Japanese tastes) strongly worded joint statement, Toshiyuki Shiga. Chairman of  Japan Automobile Manufacturers Association, and Koichiro Nishihara, President of the Confederation of Japan Automobile Workers’ Unions threw down the gauntlet to the Japanese government. Executive summary: “We are sick as hell of the high yen and we can’t take it anymore. Do something, or kiss those jobs sayonara.”

Current foreign exchange rate levels represent, for the yen, an appreciation that not only far surpasses all prior projections by Japanese automakers, but also totally fails to reflect Japan’s economic fundamentals.

Over the decades, the Japanese automobile industry has carried out a steady series of cost-cutting and other measures necessary to maintain its international competitiveness.  The yen’s present exchange rate level, however, clearly exceeds the limits of such efforts.  The continuation of this trend seriously threatens the ability to maintain the foundations supporting the manufacturing craftsmanship that has long been the basis of Japan’s competitive edge.  There are also fears that these currency market conditions will have a profoundly adverse impact on employment throughout Japan’s motor industry, including the parts supply and other vital sectors.

Having been heavily affected by the devastating March 11 earthquake and tsunami, automobile production in Japan is at last moving towards recovery.  The yen’s excessive appreciation risks gravely hampering this nascent recovery and, in doing so, imperiling the resurgence of Japan’s weakened economy.

In view of these realities, JAMA and the CJAWU strongly demand that the Japanese government take swift and effective action aimed at reducing the yen’s current strength.

In other countries, talk like this would be shrugged-off as posturing. A joint statement by employers and unions would raise eyebrows anywhere. In highly polite Japan, such a statement is the last step before a suicide note. Shiga is also the COO of Nissan, a company far less exposed to the high yen than Toyota or Honda. One dollar buys 80 yen today.

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Toyota To Japanese Government: If The Yen Gets Any Stronger, We Go Sat, 06 Nov 2010 12:50:15 +0000

Despite the riproaring profit numbers, there is trouble in Toyota City. The ever appreciating yen is gobbling up ToMoCo’s profits. Message from Toyota to the Japanese government: “Do something, or we leave.”

Reports The Nikkei [sub]: “In comments that appeared to be aimed at Japanese currency authorities, Satoshi Ozawa, Toyota’s chief financial officer, said the carmaker might move more production outside Japan if profits in the six months to March declined further than expected.”

Translation: Bring the stronger and stronger yen in check, or you’ll be writing unemployment checks instead. Koji Endo, an automotive analyst at Advanced Research Japan already says that Toyota’s carmaking business is losing money, while their financing business is bringing in the bacon.

According to The Nikkei, “the warning, delivered at a quarterly earnings briefing in Friday, will add to pressure on the government over the yen’s ascent toward a 15-year high against the dollar. Akio Toyoda, Toyota’s president, last month called the surge a “big problem” that threatened all of Japanese industry.”

Now before the contingent that hasn’t passed currencies 101 yells “currency manipulation,” here a short primer. There is “currency manipulation,” there is “quantitative easing,” and there is “central bank intervention.” Just like with terrorists and freedom fighters, it depends on which side you are on. Maybe the Japanese should ask Bernanke on how to weaken a currency. He’s quite good at it at the moment. Recently, the stronger yen was a function of the weaker dollar.

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Despite Currency Woes, Hyundai Earned $1.2b In The First Three Quarters Of 2010 Thu, 28 Oct 2010 17:14:46 +0000

Although the Korean Won has stayed strong this year, hurting the profitability of Korean exports, Hyundai has banked $1.2b in profits in the first three quarters of 2010, reports Automotive News [sub]. Analysts had expected the resurgent automaker to earn closer to $1b in profits, but they say that an even stronger Yen has helped Hyundai cut into the sales of its Japanese competitors. And with a new Elantra, Equus, Sonata Wagon, Veloster sports coupe and other much-anticipated products about to hit the market, Hyundai is expected to keep its momentum rolling. Fujio Ando, adviser at Chibagin Asset management explains

Hyundai, like many other Korean makers, has created a solid structure to manufacture and deliver products at the lowest cost. They also have some of the world’s best-known and hot product designers, while Japanese makers are still using domestic designers. Japan has little chance to win this battle
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Japanese Automakers To Japanese Government: Want More Jobless? No Problem, We Can Deliver Tue, 19 Oct 2010 13:48:37 +0000

Did we mention that there is a steady drumbeat by Japanese companies that openly think about, or deny (with huge qualifications) moving more and more production outside of Japan? Did we imply that a lot of this noisy thinking might be targeted at the current Japanese administration with which the carmakers are as much at odds as a carmaker can be with an administration that comes with full union backing and is full of former union officials? (Oops, never mind.) Anyway, Japanese carmakers are accusing their government of losing the war of the soft currency (led by the U.S. that lets its dollar slide while accusing others of  manipulating their currencies – a good offense beats any defense.) Now the rhetoric is getting less circumspect.

Today, the Yen stands at 81 against the dollar. And Japan is hitting back on all fronts. “Although Washington has long criticized Beijing for not revaluing the yuan quickly enough, many countries now consider the recent sharp fall of the dollar more of a problem than the Chinese currency,” said Yuji Kameoka, chief foreign exchange strategist at the Daiwa Institute of Research to The Nikkei [sub].

The biggest broadside however is fired against Japan’s own government. Under the (for Japan) highly unambiguous headline “Govt Must Stem Carmaker Exodus,” The Nikkei [sub] runs a long editorial that demands (imagine that, in Japan)  that “the Democratic Party of Japan-led government should take immediate steps to slow the exodus of Japanese car production to other countries as the trend bodes ill for Japan’s manufacturing sector.”

The Nikkei praises places like Thailand, because “it offers such attractive inducements as promising corporate-tax exemption for eight years to those producing fuel-efficient models. It has also signed free-trade agreements with other ASEAN members and Australia, making it a strategic location from which to export to these markets.”

“In contrast, Japan is increasingly portrayed as the country least suited to host factories for a number of reasons. Its domestic market has shrunk amid a falling population while its corporate tax rate is among the highest in the world. Its government has signed few free-trade or economic partnership agreements. In addition, it appears to be toughening labor regulations at a time when the yen’s value is rising.”

The Nikkei reminds its own government of other industries that are long gone, and that the car industry may soon follow:

“Japanese carmakers used to be less willing than textile and consumer electronics makers to move production to these countries because manufacturing cars requires much larger capital outlays. But they have begun to do so as demand is growing sharply in emerging economies. Their moves overseas are inevitable and cannot be halted given these circumstances.”

The Nikkei makes (by Japanese standards) very blunt demands:

Additional auto production, equivalent to an aggregate 2 million units or so annually, is forecast to be moved overseas from Japan over the next two to three years. In light of this, the government must immediately intensify its efforts to sign economic partnership agreements and significantly trim the effective corporate tax rate if it wishes to slow the outflow.

The Kan government must be alert to Japanese carmakers’ moves because the fate of the auto industry — the largest component of Japan’s manufacturing sector — has far-reaching implications for the sector as a whole.

The Nikkei has always been the voice of the industry. The message is clear: Do something, or we are out of here. Do nothing, and you will be out of here. In Japan as in  the U.S.A., the Democratic Party is supposed to be the party of jobs, not the party of jobless. Don’t do that job, and you’ll be out of a job. You are worried about high unemployment? We can give you much higher unemployment, if that’s what you want.

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Will Toyota Leave Japan? Mon, 18 Oct 2010 09:25:55 +0000

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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Toyota Mulling The End Of The Japanese Corolla Thu, 14 Oct 2010 15:04:24 +0000

A report in Japan’s Kyodo news agency [via Reuters/Automotive News [sub]] must have raised a few eyebrows in Japan: thanks to a rising Yen, Toyota is reportedly eying an end to Corolla exports from Japan by 2013. Toyota has since emphasized that

it has made no decision to halt production in Japan of its Corolla automobiles for overseas sales but said it was always considering an optimum global production structure.

The yen hit 81 to the dollar today, both on Yen strength and dollar weakness. ( A Euro buys 1.41 dollars again – get ready for Eurotrash invading Manhattan.)

Toyota has already shifted the bulk of its Corolla production overseas: last year it built 815k Corollas outside of Japan, and only 235k in its home country (60 percent of which were exported). Still, Toyota has long considered stability in its Japanese workforce as core institutional value, and previous currency rises led to changes in design and quality philosophy rather than reductions in Japanese production levels. But then Toyota is no longer in a position to release currency pressure by targeting “fat” or “overquality” product the way it could in the early 90s. The “overquality” simply isn’t there anymore. Like everyone else, Toyota’s major competitive option is to move production closer to cheap labor and large markets.

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Toyota Saying Sayonara To Japanese Production? Sat, 04 Sep 2010 14:45:16 +0000

The ever rising yen makes Japanese manufacturers flirt with the idea of abandoning the land of the rising sun and to shift production abroad. Toyota President Akio Toyoda told Asahi Shimbun that Toyota wants to keep building cars in Japan — for domestic sales. Even that is up for discussion.

“The current situation is very tough,” Toyota President Akio Toyoda told the paper when asked how the strong yen affects Toyota’s business. “But Toyota is a global company that was born in Japan…. We would like to keep working hard in Japan.” Note: “We would like.”

Toyoda did not rule out moving its factories overseas to build models to be sold in Japan. But he added: “I have a strong feeling about manufacturing in Japan and our basic approach is to produce cars where they are sold.” Note: “Our basic approach.”

Translated from Japanese, this means. “Sorry, we are leaving.”

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Yen Strengthens, Mazda Freaks Sat, 04 Sep 2010 13:32:52 +0000

You know who is really freaked about the stronger and stronger Japanese yen? Mazda. Mazda is considered the Japanese manufacturer with the highest exposure to currency swings. Mazda builds 70 percent of its vehicles in Japan. In the first half of 2010, Mazda exported nearly 80 percent of its Japanese output. Ouch. A year ago, a dollar bought 110 yen. Today, it buys only 84. As the yen continues its march upwards against other currencies, Mazda is enacting emergency cost reduction measures to protect their profits from being gobbled up by a steadily advancing yen on its earnings. Here is the plan:

  • Suppliers will have to give up 3-5 percent on their parts.
  • Mazda’s R&D will be made more efficient, most likely by taking some pages out of Volkswagen’s playbook: They will use a common framework for making differently sized cars.
  • Sales operations will be made more efficient.

That’s it. No Nobel Prize material. Mazda expects to save between $350m and $470m (at today’s dollars …) That’s exactly what will be missing in their kitty should the yen remain at current levels. Right now, the Japanese currency is 6 yen stronger to the dollar, and 17 yen to the euro, than what’s in Mazda’s budgets.

According to The Nikkei [sub], Mazda forecasts that group operating profit will jump 220 percent in fiscal 2010. If everything goes as planned.

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Japanese Carmakers Below Invoice! Buy Now? Wed, 25 Aug 2010 11:54:16 +0000

Psssst! Want to buy Japanese car makers below book value? Now is the time. Spooked by the strong Japanese Yen, stocks of export-heavy Japanese automakers such as Toyota and Suzuki can be had for less than the assets on the books.

Toyota can be bought at a price to book ratio of  0.99. Suzuki is a bargain at 0.94. Mazda Motor, Sony, and Sharp can be had for less than they are worth. The reason?  An obscenely strong Yen that is at its highest level in 15 years. (Please remind to shove worthless dollar bills down the throats of any foreign exchange challenged people who still claim that the Yen is artificially low.) But there are also “growing concerns about an economic slowdown abroad.” And you know who they mean with that.

Disconcerting trend: In times of crisis, such as when the existing home sales drop 27 percent, there is a flight to quality. That used to be the Yankee Dollar. Suddenly, it’s the currency of that down and out country called Japan that is assumed to be the safest bet. Isn’t that a bit worrisome?

What’s even more worrisome is that Japanese analysts remain cautious. “Stock indexes showing bargains are not enough to encourage them to start buying again,” says market analyst Masayuki Doshida at Matsui Securities Co.

Back to cars: A strengthening Yen means that manufacturers such as Toyota have to move more product ion abroad. That’s good for jobs. But it takes a while. Short and mid-term, the winners are the export-heavy Europeans, i.e. the Germans. Volkswagen profits heavily from a low Euro. BMW and Daimler were saved from assured extinction by this situation. But pssst again: If the business climate in Europe improves, the currency might improve with it.

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Japanese Car Makers Worried About Sumo-Sized Yen Wed, 07 Jul 2010 12:28:01 +0000

There was a time, in summer of 2007, when a dollar bought more than 120 yen. Once you arrived in Tokyo, you quickly wished it would have bought more. Now, the dollar buys about a third less. The dollar/yen rate had been at a downward trajectory since that summer of 2007. What made the yen really expensive was a company called Lehman Brothers, and the fallout following their bankruptcy in 2008. For inexplicable reasons, the yen is seen as a safer currency than the greenback. Should you make the mistake of stepping off the plane with Euros in your pocket, you would be in for an even bigger shock. In July 2008, a Euro bought 170 yen. Now, it’s down to 109.  For even more inexplicable reasons, some mentally unstable people still talk about an undervalued yen.

You may not travel to Tokyo frequently enough to give a hoot. But Japanese auto manufacturers don’t want to take it any more.

The chairman of the Japan Auto Manufacturers Association (JAMA) said today he hopes the Japanese government will lend a hand to reel-in the strengthening yen, reports The Nikkei [sub]. “If the yen’s strength continues, there will be a negative impact on Japan’s economy,” said Toshiyuki Shiga. “If there are any steps the government could take, then we would like to ask for such measures,” said the chairman, who is also COO of Nissan.

A strong yen makes exported cars more expensive (or less profitable,) and it diminishes overseas profits when they are consolidated into the books back home. About half of the vehicles produced in Japan are usually exported. Japanese automakers currently enjoy a rising domestic demand. But they are worried about a German-sized hangover once the government subsidies expire later this year.

Japan could use what Europe has: A soft currency. In the first six months of 2010, German car sales were down 29 percent. In the same period, the German auto industry produced 23 percent more cars than in the first half of 2009. Why? Strong exports, driven by a soft Euro. (Why doesn’t anybody complain about an undervalued Euro? I could use some Euro value. Help me out.)

In the “if there are any steps the government could take” department, there is only so much a government can do. The yen is freely traded. The Prime Rate in Japan stands at an all-time low of 1.45 percent. No room for play there.

There is another government in play: The Chinese. The Wall Street Journal reports that China “has significantly increased its purchases of Japanese government bonds in recent months.” This most likely intensified in the past week after China relaxed the Yuan/USD peg. That vilified peg had forced the Chinese to buy dollars to maintain the peg. With the peg relaxed (as requested umpteenth times by U.S. government figures and lawmakers) there is less reason for Chinese dollar buying. That money now can go to Tokyo, driving up the yen even more.

If the world market thinks a country with a deficit of 227 percent of GDP is a safer place to park your money at next to no interest, then this should give us pause to think.

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China: Higher Wages, Higher Currency, Higher Automation Tue, 22 Jun 2010 11:19:22 +0000

In another case of unthought-through consequences, the cheered-on push for a stronger Chinese currency and higher wages strengthens the competitiveness and quality of Chinese products through increased automation of assembly lines.

Bloomberg reports that Nissan, together with the joint venture partner Dongfeng, is building a 5 billion yuan ($732m) plant in Guangzhou with the newest in automation. The factory is scheduled to open in 2012. In addition, Nissan spent about 1 billion yuan ($147m) on a second production line with the latest equipment at their Zhengzhou factory.

This is not an isolated incident. “The automation rate in China is on the rise,” said Nissan spokesman Mitsuru Yonekawa.  “We need to boost productivity in China,” COO Toshiyuki Shiga said. “Just because labor costs are higher in China, we won’t be leaving.”

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Strong Yen Drives Japanese Auto Makers Out Of The Country Sat, 01 May 2010 17:37:25 +0000

If anybody will again blather about a “weak yen” that has been “manipulated by the Japanese government,” then I’ll personally come visit, with the intent to insert a sock in the mouth. For reasons explicable only to forex mavens, the currency of the economic basked case Japan keeps on getting stronger. Japan’s car manufacturers think this will continue, and they are taking precautions. More precisely, they are taking production out of Japan.

Japanese companies are getting ready for a dollar buying 90 yen and less in this fiscal year. (For those not versed in currencies: That’s a strong yen …) This would be a great time for American car makers to export to Japan – if the Japanese would just buy American cars.

For Japanese exporters, a strong yen is a disaster.

To counter this, Honda will increase the number of cars assembled in India, China and other emerging markets, says The Nikkei [sub] .

Mitsubishi will shift component manufacturing abroad.

Hirose Electric, maker of electronic parts, will increase their production abroad.

More companies are expected to follow. A big beneficiary will be China, as their currency is pegged against the dollar, alleviating any currency risk. Despite the rhetoric, this is not expected to change anytime soon, at least not in a drastic way.

Speaking of China, the critics of the dollar peg need to be careful of what they wish for: One reason for the humongous dollar reserves the Chinese hold is that they have to buy dollar-denominated securities to maintain the peg. With the peg gone, no pressure to buy dollars, and the dollar will get cheaper. Prices at Wal-Mart will rise, inflation will come knocking, while car exports to Japan will be even more attractive. If the darned Japanese would just take a liking to American cars.

Going up? Picture courtesy
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China’s Dongfeng On The Prowl For Western Beauties Wed, 14 Apr 2010 14:45:27 +0000

Western auto makers in distress are in the cross-hairs of Chinese auto makers that are riding one of the largest car booms in history. When Geely closed its deal with Ford over Volvo, we wrote: “Government owned companies like FAW, SAIC, Dongfeng, or BAIC will watch closely how privately owned Geely will digest the Volvo purchase. If successful, western car companies will be on their shopping list again.” They already are.

According to Reuters, China’s Dongfeng “ said it sees opportunities for mergers and acquisitions in the global auto sector still reeling from the fallout of the global downturn.”

Dongfeng “will closely monitor opportunities for overseas acquisitions,” Chairman Xu Ping told reporters in a news conference today.

He added that a rising Yuan, which many believe will take place in the next few months, would further strengthen Dongfeng’s position in making any acquisitions.

Succumbing to pressure from (or making a deal with) the U.S., China is expected to let its currency float, at least a bit more than now. That will make American union leaders happy. They think jobs will come back stateside in droves. They most likely will be disappointed. A stronger Chinese currency makes foreign sourced products – or companies – cheaper for China. China can go up the value chain. Instead of competing with the U.S. with cheap stuff, there will be competition for more expensive stuff. For instance for cars.

As China visionary Jack Perkowski notes in his blog Managing The Dragon,

“Japan’s exports to the United States continued to increase in the mid-1980s, even after the country allowed the yen to appreciate significantly against the dollar. Similarly, China’s exports to the United States increased by 40 percent from July, 2005 to July, 2008, a three year period which saw the Yuan appreciate by 21 percent.”

A stronger Yuan will add to the inflationary pressure on America while the U.S. printing press is already in overdrive.

Be it as it may, Chinese car makers will translate their cash and possibly a higher Yuan into buying foreign expertise. State-owned Dongfeng, the Chinese joint venture partner of Nissan, Honda, and PSA is sitting on $2.55b in cash. If they need more, the government will provide it.

According to Reuters, “Chinese auto makers are eager to buy technologies and brands from overseas to enhance their competitiveness in the U.S. and European markets.”

Ever since I have been writing for TTAC, China’s #3 Dongfeng has been seen as a player. In November 2008, China’s 21st Century Business Herald said that Dongfeng was interested in buying GM and/or Chrysler. If they only would have. At that time, both companies still had some value, and the U.S. tax payer would have been spared the bail-out cost.

Instead, the U.S. has embarked on silly trade wars about tires and gift wrapping ribbons that have not brought a single job back to the U.S. By insisting on a higher Yuan, the U.S. lowers the price on foreign know-how and assets, and hastens the speed by which the U.S. auto industry will be wiped out by the Chinese.

But explain that to the knuckleheads at the UAW. They only learn one way: The hard way.

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Toyota Restarts Plant Contruction As Currency Worries Outweigh Falling Demand Mon, 07 Dec 2009 19:25:55 +0000

Asiaone Motoring reports that Toyota are now pushing forward on their constructions of plants in the United States and China which had previously been put on hold. It should come as no surprise that part of the reasoning behind this decision is to meet growing demand in China. More importantly, Toyota needs to protect itself from the strong yen, a consideration that now apparently outweighs weakness in the US market.  The report says that Toyota is expected to invest and additional 100 billion yen (about $1.1b) to get these plants completed. Although these plants will increase capacity by 200,000 units, Toyota plan on halting production on lines in Japan and the UK, as the firm must still reduce capacity by 1 million units in order for this investment to work. Though the move is a clever one, it highlights the enormous pressure the world’s number one automaker finds itself under: overcapacity is bad enough, but when so much of its production is based in Japan, it deal with reduced production while paying for expansions in cheaper production zones. The upside? This plan could lead to US production of the Prius at the under-construction Mississippi plant sooner than expected.

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