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.
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.
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. (Read More…)
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: (Read More…)
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. (Read More…)
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. (Read More…)
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.”
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. (Read More…)
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. (Read More…)
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.