By on March 30, 2007

1999-09-03_08-3622.jpgAs Detroit slips into a quagmire of its own creation, The Big 2.5 are busy flexing rapidly wasting political muscles. On Tuesday, the top brass met with President Bush to forestall discuss plans for greater fuel efficiency. The next day, Senator Debbie Stabenow (D-MI) introduced The Japanese Currency Act. Like her Motown home boys, Stabenow claims the Japanese government is manipulating their exchange rate to provide an inherent– and inherently unfair– “discount” over American-made products. Uh, I don’t think so.

There are plenty of reasons to dismiss this legislation as End of Days insanity. First, there’s the timing. If the yen – dollar exchange rate is such a pressing problem for Detroit automakers, why did Stabenow hang fire until after the recent elections? Indeed, The Big 2.5 has been losing ground to Japanese-owned automakers for decades. If [alleged] Japanese currency manipulation wasn’t a problem ten years ago, why should anyone believe it’s a problem now?

Second, the proposed bill directs the U.S. Department of Treasury to work with the Council of Economic Advisors and the Japanese government to devise a plan to draw down Japan's “excessive currency reserves." The Act is a patently ridiculous effort to interfere with one of America’s best trading partners and a key strategic ally. It’s an entirely theoretic maneuver that’s doomed to failure; the Japanese Finance Ministry is about as likely to embrace foreign dictates as the U.S. Federal Reserve Board.

Third, while government bodies can manipulate foreign exchange rates, there are obvious limits. Remember when the Euro came out and dived against the dollar? Nothing the Ministers could do helped stop the rot. In fact, any country with open capital markets can only slow currency valuation trends– not create, prevent or stop them.

Even if the Powers that Be conspired to set the Yen at a more Detroit friendly level, the impact on the U.S. car industry would be minimal. The Automotive Trade Policy Council– a Detroit political mouthpiece– says the exchange rate delivers a $4k to $10k per vehicle “windfall” to Japanese automakers. Even if you accept this logic (and forget about the cost of Japanese labor and transportation), we’re talking about a tiny slice of the Dai-san’s U.S. business.

Ironically enough, Japanese automakers moved most of their production overseas in the mid-‘90’s to head off the impact of the (then) strong Yen. Nowadays, only Toyota’s Lexus and Scion models are made exclusively in Japan. Honda’s CR-V is their last home-grown U.S. export– and they’re shifting production stateside. While a rate-based “discount” on transmissions and some electronics (the major imported components) may help, their competitive advantage is not what you’d call overwhelming.

And what of the reverse? While virtually all its factories are in Japan, Mazda has not been able to lift up Ford. If a Japanese production base gives foreign automakers such a large cost advantage, why did GM and DCX recently cut ties with their Japanese “little brothers”? If access to cheap Yen is truly a great advantage, why are Isuzu and Mitsubishi wallflowers at the automakers’ ball? 

Abandoned by their foreign “partners”, these Japanese automakers have been unable to hook up with new partners– and it’s not for lack of trying. Suzuki has apparently decided to use whatever Yen-based “advantage” they possess to make a big push in the Japanese domestic market. When the one Japanese carmaker with no US manufacturing capacity makes its major market push outside the U.S., it tells us that the days when “made in Japan” meant cheap (in any sense of the word) are long gone.

So why does the Yen remain relatively weak, when the Euro and Pound are getting stronger? While most Japanese car and electronics makers are doing well (some more than others), the Japanese economy is in the same slump it’s been in for the last 15 years. Despite government rates that are a tenth of those of the US and Europe, Japanese banks are still “weak.” They’re still saddled with tens of billions of dollars worth of outstanding loans made during the economic “bubble” of the late ‘80’s. Loans they can’t afford to write-off.

Bottom line: Japanese banks aren’t lending much money. Japan’s economic growth is practically flat, with a shrinking and aging population. What’s good for Lexus– a booming Japanese economy– ain't happening.

If the The Japanese Currency Act is so wrong, so late and so feckless, why make the gesture now? The timing doesn’t match plant closings. It doesn’t smack of Big 2.5 Head-Honcho-dom; the Fat Cats only complain about exchange rates when they need a convenient excuse for lackluster sales.

Nope. The bill’s likeliest target are the people most in sync with its paranoid xenophobia: the United Auto Workers. To this receptive audience, Stebnow's Act makes it sound like “something is being done”. Which is true enough: precious time and energy are being wasted on an unimportant non-issue.   

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75 Comments on “Stabenow’s Japanese Currency Manipulation Act: A Yen For Stupidity...”


  • avatar
    Paul Niedermeyer

    Here’s a tip for the Not-so-big 2.5: Open factories in Japan and export to the US.

  • avatar
    whitenose

    A real aid from Congress would be a single-payer healthcare bill. Removing the healthcare liability would help Detroit a helluva lot more than pointless, nationalistic fearmongering.

    But it ain’t gonna happen with Republicans still in control.

  • avatar
    troonbop

    This seems like a classic case of diversion in a magic act; too bad there isn’t a lovely assistant to watch.

  • avatar
    GS650G

    Yeah just we all need a single payer to bailout the bloated pension and benefit legacy costs the UAW imposed on the 2.5

  • avatar
    rossjk

    Another day, another red herring from Detroit. Sad to see the culture of “deflect and blame” leave a puddle of fecal matter on Stabenow’s doorstep. Maybe the Michigan voters will remember this weak minded, pointless finger pointing when Stabenow runs again.

    I won’t hold my breath.

  • avatar
    TeeKay

    Doesn’t this remind you of a Simpsons episode where Homer did …

  • avatar
    Luther

    GREAT article Andrew!

    Health care as well as education and energy are far to important to human well-being to let a Government take them over. This would be a fast-track to human economic suffering and deprivation. How much productive ambition would you have if the Gov’t took 70%-80% of your income to fund these things? Try to vote yourself something for nothing and you will end up with nothing for something. See Europe.

    It will be interesting to see how much support the Japanese Currency Act will have. I doubt it will go anywhere though.

  • avatar
    Cowbell

    I’m not sure this article is that accurate. While the speculation that the timing and meaning of the proposed legislation by Senator Stabenow is more for political interests than economic interests seems reasonable, I don’t think the claim that Japan in not manipulating it’s currency is reasonable.

    That’s not to say currency manipulation is a major reason why the Detroit automakers are doing poorly, as most would agree that’s due to years of Japanese carmakers producing more desirable cars.

    Just because Detroit is throwing Japanese currency manipulation out as a lame excuse to cover their years of bad decisions, does not mean that there is no truth in there. It seems to me that most economists agree that Japan has engaged in some currency manipulation in recent years, even in articles and journals not related to the auto industry.

    Once again, I’m not saying that currency manipulation is why Japanese automakers have an increasing market share in the US, while traditional American automakers are shrinking.

    Also, this editorial makes it sound like almost all Toyotas and Hondas are now being made in the US, while the opposite is actually happening. In January and February of last year, Toyota produced 59.3% of it’s vehicles in the US, while only 51.5% for 2007. In fact, despite an increase in sales, less Toyota vehicles have been made in NA this year than last. A cynic might say that this is because the Yen is even weaker this year than it was last year against the dollar.

  • avatar
    Sid Vicious

    Wasn’t that the Simpsons episode where Lisa proclaimed “Prayer (= whining about currency manipulation.) The last refuge of a scoundrel (= Detroit automakers?)”

  • avatar
    SherbornSean

    Is there some way we can blame the Japanese for the Sebring, Aztek and Freestar? What about the Compass — I here it has Mitsubishi blood in it.

    Andrew, great editorial. Nice to see someone with some stones.

  • avatar
    jdevault

    Sorry but I can’t let some canards about universal healthcare to go unanswered.

    The U.S. despite having 47 million uninsured spends a greater % of GDP on healthcare than any other nation. One can argue that we get better health care results but the facts don’t support that argument. As the only industrialized nation without some form of universal healthcare too much of our healthcare expenditures go to insurance companies massive administrative expenditures to deny coverage or care.

    No it would not take 70-80% of our income to provide what every other modern nation does. The most bloated estimates of providing universal healthcare are less than our annual expenditures for the Iraq war. I think I’ll take healthcare.

    As far as ending up like Europe if we take this route that’s not such a bad thing. In general over the past 10 years their economies have been more productive and enjoyed equal or higher growth rates than ours. If you see the relative performance of European stock markets to the U.S over the last 10 years you’ll be sick as an American investor.

    Finally I know of no one advocating an extension of healthcare that would lead to a bailout of past mistakes of American corporations. There is no need for the government to assume the past liabilites of GM to come up with a modern healthcare system. In fact most plans I’ve seen would continue to rely in some measure on private companies continuing to provide some support for health care plans. So, unfortunately for the big 2.5, relieving them of health care obligations is probably not in the cards. Which I guess means that they will have to rely on design and quality to compete.

  • avatar
    SherbornSean

    Cowbell,
    You are putting too much emphasis on 2 month’s worth of data. The trend you are extraploating has more to do what sales incentives Toyota happened to have in Jan/Feb.

    The long term trend at Toyota and Honda has been to place manufacturing where sales are. The reasons are twofold. First, it protects them from currency fluctuations better than hedging ever could. Secondly, it reduces the political nonsense like the bill Andrew references.

    The only reason the percentage of Toyotas built in the US is lower in the first 2 months of 2007 is that Toyota is selling so many cars right now that US factories can’t keep pace. As San Antonio comes on line and as Toyota continues to build new plants in North America, the % of US built cars will continue to rise.

  • avatar
    NICKNICK

    The last thing we need is an extended government health plan–UAW or no UAW. We already have a safety net in the form of Medicaid. People say they can’t afford health insurance…well, the truth is that many can’t afford a $45K Yukon/Suburban, a second new car, a $250K house in a nice neighborhood *and* health insurance.

    The most I’ve ever (foolishly) paid for a vehicle is $18K, I’ve only ever rented apartments or portions of houses, but I’ve *always* paid my health insurance. As an unmarried, childless, mortgage-interest-deductionless renter, by myself I pay more in taxes than most families. I refuse to pay *more* in taxes to pay for someone else’s health care…now if only I had a choice on my taxes…

    The UAW is the 2.5’s problem, not mine.

  • avatar
    William C Montgomery

    Well said, Andrew. It is absurd to think that a country would sacrifice its entire economy in order to keep FX rates low and favorable for the benefit of only their auto industry.

    Japan’s economy (and resultant weak Yen) is in the toilet because of suicidal (Seppuku) lending policies of the ‘80s and ‘90 that were enabled because of the collusion between Japanese businessmen and governmental leaders.

    Besides, FX rate fluctuation is a double edged sword. The dollar has also been quite weak in recent years. How has that helped The Big 2.5?

  • avatar
    ope71

    poor overtaxed, oppressed NICKNICK. That’s right, most people without health insurance have simply decided that they would rather drive a big SUV, or live in a McMansion; They would rather live in luxury beyond their means than provide health care to their families.

  • avatar
    NoneMoreBlack

    I think you’ve made a couple key blunders here.

    1) Currency manipulation: I won’t go into the macroeconomic NATREX diagrams, but to put it simply: An undervalued currency means exports are comparatively lucrative, as the foreign currency you bring home has greater purchasing power domestically. In order to decrease exchange rates, the government of the country must increase the supply of currency above the free market level by making that currency, in this case yen, more available relative to other currencies. To do so, Japan either prints more yen or sells off government assets domestically, and then converts that yen into foreign currency, building up large reserves.

    Therefore, it is relatively easy to prove that a country is artificially holding its currency low; foreign reserve asset data are readily available. Indeed, according to the IMF (http://www.imf.org/external/np/sta/ir/jpn/eng/hstjpn.pdf), Japan’s foreign reserves now exceed $880 billion, and have steadily increased for some time. There is little imaginable reason for such a horde other than currency manipulation.

    2) Alternate explanations for Japan’s weak currency: saying that Japanese banks simply aren’t lending is something of a fallacy. Japan has one of the highest savings rates in the world, and a very low demand for investment due partially to the extremely capital rich nature of its economy. If one were to seek capital in Japan, there would be little trouble in acquiring it; few people are, however. So, it is true to say that there is little lending activity taking place in Japan. That is not, however, due to any unwillingness on the part of banks.

    Again referring to diagrams I cannot easily demonstrate, macroeconomic models indeed predict that as the difference between national savings and domestic investment rises (so, as the amount of excess savings becomes greater) the real exchange rate will fall (causing net exports to rise). However, savings and investment rates have not been very dynamic in Japan; they have been saving at or around the current rate and failing to invest significantly for some time (hence the 15 year slump). I do not therefore think this tells the whole story, especially that part concerned with currency reserves.

    3: You also write off what difference this makes, which confuses me. First, I don’t see how $4-$10k per vehicle is at all trivial; in fact, that sounds something like the difference in profit per vehicle between Toyota and GM. Second, it may be much more than that; certain analysts (quoted here somewhat generally, and I will try to find a better source http://www.indiadaily.com/editorial/15473.asp) think that the amount of manipulation may be as high as a 50% reduction in the value of the yen, effectively doubling the return on Japanese goods sold in the US.

    These types of activities are never infinitely sustainable, although China has been putting that to the test, with currency reserves now in excess of $1 trillion, and growing at an astounding rate. Since Japan could most likely engage in some seignorage (printing of money to finance government expenditures) due to their largely negative inflation rates of the past decade, they can most likely keep going for some time. Whether it is the place of US lawmakers to take strides towards changing this behavior, I cannot (or at least won’t attempt to) say.

    There are a lot of complex issues at work here, and I think you have attempted to oversimplify. I certainly agree that it would be foolish to attempt to blame all of the US auto industry’s woes on Japan’s favoring of exports; however, you have taken that basic premise too far in trying to refute what is more or less the established fact of Japan’s currency manipulation regime.

    More sources etc:
    http://www.iht.com/articles/2006/06/22/opinion/edbowring.php
    http://stefanmikarlsson.blogspot.com/2006/09/why-yen-is-most-undervalued-currency.html
    If you have an Economist subscription:
    http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348969&story_id=E1_SJSVDVG

  • avatar

    It can’t be management’s fault, right?

    It’s exchange rates or CAFÉ standards. It’s not gas prices (for rich people). It’s who has more political influence. It’s past quality issues. Or, it’s the media’s fault they’re hurting so.

    To pick only on GM, some selected Bob Lutz quotes:

    2003:
    Why do you think the Japanese continue to gain market share in the U.S.? Is it simply product-related or does it go beyond that?

    ”Part of it is, of course, exchange rates. Adjusted for costs in the respective countries,
    the yen is just too weak. And considering the cost of doing business in the United States in U.S. dollars, the Japanese still have a cost advantage of three to four thousand dollars per vehicle, which they can either use to pricing advantage or margin advantage or putting more equipment into a car at a given price.”

    “And it doesn’t matter whether they produce the cars in the U.S. or not, because a lot of the content is still imported. People say, “Well, Toyotas are built in the United States now.” Yes, many are assembled in the United States, many are not assembled in the United States, and even the ones that are assembled in the U.S. contain a high percentage of Japanese or other offshore parts. The exchange rate issue is real.”

    “The other thing is, I don’t think there is a real, measurable quality difference anymore.”

    2006 regarding CAFE:
    “For one thing, it puts us, the domestic manufacturers, at odds with the desires of most of our customers, namely larger vehicles. That effectively hands the truck and SUV market over to the imports, particularly the Japanese, who have earned years of accumulated credits from their fleets of formerly very small cars.”

    2006, CAFE again:
    Opposing government plans to increase the US Corporate Average Fuel Economy (CAFE) standards by 4% per annum, Lutz tries an analogy: “…forcing automakers to sell smaller cars to improve fuel economy with fighting the nation’s obesity problem by forcing clothing manufacturers to sell garments in only small sizes”. [Huh?]

    2006, It pays to be rich:
    When the new Tahoe SUV was released, reporters asked GM Car Czar Bob Lutz whether rising gas prices would discourage SUV buyers: ”Rich people don’t care about gas prices,” Lutz remarked.

    2007, regarding political influence:
    “Toyota outspends us. They have more congressmen and senators than we have,” Toyota has more clout in Washington than we do.” -and- “Japanese automakers as a whole have become more politically powerful.”

    2005, regarding blogging:
    What blogs do you read?
    Which are your favorites, other than your own?

    “I do a lot of my work on a Blackberry so I do not have time to read many blogs.

    My staff is always emailing me interesting posts though, particularly from blogs that are writing about us. I think blogging is fantastic because it is creating a self-regulating media.”

    “Recently, a negative article was published declaring one of our vehicles a flop. Within a few days a third-party blogger analyzed the article and discredited it with the facts.”

  • avatar
    NICKNICK

    ope71:
    Opressed? Not quite. While I do feel I pay a disproportionate tax burden, I have had the freedom to take the initiative to improve my situation through reeducation. Oddly, while that helps, it also increases one’s tax burden…

    As for the McMansions–I wasn’t saying that those people sacrifice their health insurance to make the house payments–quite the contrary. The forclosure rate in nice neighborhoods (in this region anyway) has approximately doubled in the last couple of years. While it’s a small increase (i.e. not doubling from 25% to 50%), it is accompanied by chronic complaints of credit card debt and cries of “someone should do something about health care!” I am happy with the vehicles I own and with my home. I am not happy about having to help pick up the pieces for those that cannot be satisfied by living within their means.

    Based on your reply, I get the impression that you think I was whining. I didn’t mean it to sound “poor me.” It was supposed to sound more redneck “don’t tread on me” but i see where you got that :)

  • avatar
    BostonTeaParty

    Japan has been playing games with its currency whether you want to believe it or not, maybe there should be a look at the fair trading rules involving cars importing to the rising sun. if the US added the taxes on that the Japanese do then it would be more of a level playing field but this Us government doesn t have the balls to fight for its domestic industries. Does the same argument come in the future where China HAS been manipulating its currency for all aspects of export, surely that will have an effect on the future auto industry too?

  • avatar
    Yuppie

    Comments re: jdevault’s post…

    I doubt most would agree with his comment that it would not be so bad if our economy ends up like that of Western (i.e., developed) Europe.

    You must be kidding if you think European stock markets and/or economies have outperformed their U.S. counterparts over the past 10 years.

    re: Ope71’s post…

    It happens. Especially in LA, where bling is king, and one’s primary care physician is … the emergency room at UCLA Medical Center.

  • avatar
    Robert Schwartz

    The low yen of course explains why “Japanese” cars, even ones designed and built here in Ohio, like the Accura TL command higher market prices, bigger market shares, and higher re-sale values than the Big 2.5’s plonk.

  • avatar
    Jonny Lieberman

    What I like about Socialized Medicine, besides unloading the burden from Detroit, is that poor people can get immunizations.

    My mother nearly died when she caught Hepatitis B from one of her students. His parents never took him to a doctor because they simply couldn’t afford it.

    Back to cars — wouldn’t it be great if buying an American car wasn’t a compromise? Wouldn’t it be awesome if you could walk into a Chevy dealer, confident that your new Malibu is better than Honda/Toyota in every measurable way?

    That’s why people buy Hondas — they know they are getting the best car for the money (or even for a little more money) without compromise.

  • avatar

    NoneMoreBlack said: “First, I don’t see how $4-$10k per vehicle is at all trivial;…”

    Thing is, who says those numbers are even real?
    Oh, The Automotive Trade Policy Council.

    And the “ATPC is a Washington, D.C.- based non profit trade association that represents the common international economic, trade and investment interests of its member companies.”

    Those member companies? DCX, Ford and GM.
    No bias there, ya think?

    FWIW: My ’06 Civic was assembled in Canada.
    Its North American Parts content is 85%.
    (Ex. The engine was made in the U.S.A.)
    The 15% from Japan? The transmission.

    Yet Honda is building more transmissin-building capacity in the U.S.:

    2004: A $100 million plant in Tallapoosa, Ga.,
    to produce automatic transmissions.

    2006: Honda plans to build a $550 million auto plant in Decatur County, Indiana.

    5/2006: Honda celebrated the start of mass production of five-speed transmissions by announcing plans to expand production capabilities at its west Georgia facility.

    1982: Russells Point, Ohio, started production of auto transmissions for Accord, Acura TL, Acura EL, Acura MDX, Odyssey, Civic, Pilot and Element.

    And on and on…

  • avatar
    dkulmacz

    Sorry, but it appears that NoneMoreBlack has pretty much torpedoed the gist of this article. And I’m no expert, but to me he sounds like he knows a bit more about the subject than most of us.

    Also . . . Glenn Swanson, what exactly is your point? I suppose to some, reading all those quotes will make milk come out of their nose or something. But I don’t see anything blatently stupid or wrongheaded there, perhaps aside from the ‘rich don’t care about gas prices’ quote (though in reality most don’t, I guess).

  • avatar
    stimpy

    The single biggest reason that Detroit is in trouble vis a vis the Japanese: Japanese auto executives are passionate about delighting the customer while American executives are passionate about Quarterly Reports. So long as our manufacturers care more about short-term financials than engineering excellence, they will continue to lose market share. Everything else is irrelevant by comparison. I don’t avoid the domestics because of price, but because they haven’t sweated the details in their product like the Japanese have.

  • avatar
    Redbarchetta

    Why don’t they just roll over and die like they should have 10 years ago insead of making our whole country look like a bunch of stupid whining babies.

  • avatar
    jthorner

    Let me see if I understand this. When the US Treasury and/or the Federal Reserve medal in the markets this is management. If, and I mean if, the Japanese goverment agencies are medalling in the markets then this is “manipulation”.

    If the Congress wishes to have all goverments stop attempting to influence exchange, credit and capital markets then it should start by stopping the US government from doing so.

    The idea that the weak Japanese yen is the cause of american manufacturing going down the poverbial drain is nonsense.

  • avatar
    jthorner

    To BostonTeaParty’s comment I can only say that several attempt to sell US made American branded cars into Japan have been made. The right hand drive Chevrolet Cavalier comes to mind. The problem was that almost nobody could be found to buy one. The Japanese consumer only buys an import brand if they feel it offers them something clearly better than the local brands, which is normal. What reasonable person living in Japan would rather have a Cavalier than a Corolla? Moving forward, absent any rooting for the home team, what mass market US brand car is clearly better than it’s Japanese competition? The last time I was in Tokyo I saw BMWs and Mercedes, but not one Cadillac. No surprise there!

  • avatar
    50merc

    Stimpy has summed it up; more than anything it seems to be an organization culture thing. About thirty years ago, when I first looked under the hood of a Toyota, I was delighted to see the craftsmanship in the quality of fasteners, the way wires and hoses were routed, the finish on parts, etc. What a contrast to Detroit’s cars! (And no, the UAW is NOT to blame for that.) A decade ago I bought the cheapest Honda lawnmower on the market. All the components, not just the engine, reflect craftsmanship and engineering competence. Plus, it started with an ease that put Briggs & Stratton to shame (and into bankruptcy, if I recall correctly). Another reason to trust Japan more.
    Are the 2.5 unwilling — or unable — to design a four cylinder motor as smooth as Honda’s?
    Can it be that our universities produce engineers who are incompetent or lack pride in what they design? Or is it just that the 2.5 stomp the energy and self-respect out of them? I’m baffled.

  • avatar
    Yuppie

    Of American Hondas and Japanese transmissions…

    I had a 2001 Honda Accord EX V6. Only its auto transmission was imported from Japan. The rest (same 85% as G. Swanson’s Civic) was made in Ohio. After about 130K miles the transmission failed.

    My Dad’s 1994 Acura Legend is still going strong, with almost double the mileage. Both V6’s have similar hp and tq. Made in Japan is no longer what it used to be.

  • avatar
    Landcrusher

    Ya, what we really need is to ruin the best medical care in the world in order to save some of the worst auto makers in the world from going bankrupt.

    Here is a bit of news for you: Fifty years from now there will be about one tenth of the auto manufacturing jobs in this country as there are now. Robots will be doing that work, for the most part. Get over it.

    The UAW is just a few tech advances from complete obsolescence.

  • avatar
    Luther

    Currency Manipulation is redundant. It is the nature of a bogus fiat monetary system. One day in the future there will be a global currency (The USD being the defacto global currency right now) where it will only be manipu…errr…managed by one group of scoundrel…errr…managers. I think Zimbabwe should manage the global currency :)

    “What reasonable person living in Japan would rather have a Cavalier than a Corolla?”

    Americans dont even want Cavaliers…Why would the Japanese?

    “I was delighted to see the craftsmanship in the quality of fasteners”

    If you want to get a general idea of the quality of a car…Look at the fasteners.

    “Can it be that our universities produce engineers who are incompetent or lack pride in what they design? Or is it just that the 2.5 stomp the energy and self-respect out of them? I’m baffled.”

    A lot of Asian Engineers were/are trained in the US. After they earn their degrees and their Student Visa expires, they are booted back to their home country to create wealth. This is dumb.

  • avatar
    brightonjel

    Whether or not the Japanese manipulate their currency is something of a red herring. If they are doing so and think they profit by it then they will probably continue to do so; if they don’t then the whole quesiton is moot. It’s the responsbility of the management at the top of the 2.5 to deal with that reality and to effect strategic plans that combat what actually happens in their market place and not to run their business on the basis of the world they would like to see. Furthermore, this isn’t a malaise that can remotely be tagged an exclusively Japanese problem. The German manufacturers have suffered through a significant change in rates that should have made them less competitve over here now than compared to, say, two years ago. In parallel, their economy has had to absorb all the mess from reunification putting a real crimp on margins across their industrial landscape. And they still took market share from Detroit. As have the Koreans.

    Oh, and if Detroit is scared of the impact “managed currencies” have on their domestic market, they’d better be very scared indeed of China who is fast catching up with its own car manufacturing. If Chrysler or GM think they can preserve the “cheap and cheerful”/rental market for long, forget it. Kia have already made inroads and the Chinese will decimate them.

  • avatar
    Matt51

    National health care is the only way to save American manufacturing. Yes, manufacturing is important. One day, our massive trade deficits will lead to another great depression in the US. We can no longer pay for necessary imports, as we import goods that need to be manufactured here. There are three ways Detroit is screwed that is not their fault. One, we are the only industrialized nation without national health care. 2) Other countries rely value added taxes, which in Japan are rebated for exported goods (a direct subsidy from the government). 3) Japan uses interest rates to maintain a weak yen. Japan would go bankrupt if the yen stayed at 90 to the dollar. But wait – trade is beneficial if currencies are allowed to adjust based on trade deficits. Clearly Japan and China fix exchange rates to maintain their manufacturing base.
    OK, I think the 2.5 also have screwed themselves with bad management and bad engineering, but even with good management, there is not a level playing field.
    Only the brainwashed feel national healthcare is unaffordable.
    Use national healthcare;value added tax in place of income tax, and rebate to manufacturers;and make our trade partners float their currencies until the trade deficit with Japan and China is eliminated.
    Or face a great depression.

  • avatar
    Jim H

    Does Detroit honestly think we’ll buy the currency manipulation concept? As others have mentioned, our government does it all the time, there’s simply no reason to think other countries aren’t justified and able to do it as well.

    I love America…but I’m not even slightly interested in American cars any longer…at least not those under 35K. Everything that’s under 35K is subpar on the market compared to Japanese cars. And everything over 35K is decimated by the European market. (Just what I’m interested in that is.)

    It’s more than just looks, reliability, etc. It’s all those things. I was lucky to find a 2006 Subaru Spec-B…for the dollar, fun factor, and reliability as well as all-wheel drive (which was major this past week!), what American car could have competed? Not many (if any). Heck, not even many Euro cars could compete…or other Japanese cars!

  • avatar
    Mook

    If Japan is making a killing through currency manipulation, then why isn’t the US doing the same?

  • avatar

    dkulmacz: “Also . . . Glenn Swanson, what exactly is your point? …I don’t see anything blatently stupid or wrongheaded there, perhaps aside from the ‘rich don’t care about gas prices’ quote.”

    You are right.
    His comments matter not.
    Results are what count, right?

    It’s not CAFE standards.
    Not manipulation of the Yen.
    Nope, not “the exchange rate issue.”
    Forget the Japanese “cost advantage.”
    No need to “level the playing field.”
    The number of congressmen and senators you “have” matters not.

    No need to quote Mr. Lutz. The results from the Detroit auto makers speak volumes on their own.

    They are certainly on the right path–to somewhere…

  • avatar
    windswords

    jdevault:
    March 30th, 2007 at 2:05 pm

    “Sorry but I can’t let some canards about universal healthcare to go unanswered.

    The U.S. despite having 47 million uninsured spends a greater % of GDP on healthcare than any other nation.”

    Ah yes the great unwashed, uh, I mean uninsured. 47 million strong and GR O W I N G. No, really, every year the number gets bigger. It’s like the proponents of socialized medicine are hoping that they will come up with a number that reaches some kind of critical mass like a nuclear reaction and everyone will slap their hands on their foreheads and say “OMG, we gotta have gubment healthcare!”

    Let look closer at this number and see how they come up with it. First rule, when you want to skew numbers for your cause you go for anything that will make your numbers bigger, no matter how tenuous. In this case they count people who for wahtever reason lose their hobs that have health bennies. Well you say that makes sense. But wait, they never ask if their spouses have insurance that will cover them. And if they get another job before the calender year flips over? Gee, too bad bud, you have been health insuranceless for the whole year! Then they count all the poor people who are on welfare food stamps, etc., etc., as having no insurance even though they get – wait for it – government provided healthcare! Then they thorw in illegal immigrant (oops sorry, “undocumented workers”). Of course the country they came from probably didn’t give them insurance either but hey they’re in America now, and dammit, they have a right to healthcare (and signs and documents printed in their language and bi-lingual education and, well, you get the point).

    Now we come to the rich, the people everyone loves to hate, unless they are from Hollywood, in which case we think they’re “experts” in everything from global warming to foreign policy (amazing what being able to look good and memorize a few lines does for your credibility and intelligence). The rich are counted in the 37 million too, even though they don’t need insurance. That’s right everyone from Rush Limbaugh to Alec Baldwin, from Rupert Murdoch to Bono are counted as “uninsured”.

    Next we have young healthy Americans who are employed at good jobs that offer health benefits but refuse them. Why? Because they are young and healthy and choose not to have premiums deducted from their paychecks. Yes, they too are counted in with the other uninsured millions that are dangled in front of us to prove that we are in a health care “crises”. Hell, I hear that even the earth itself is sick. Al Gore told congress the other week that the earth “has a fever”. Too bad it doesn’t have the UAW’s health plan.

    So how many are really, really uninsured? Meaning, how many want insurance but cannot afford it? Around 5 million, give or take a million. Is that good? Nope. Should we do something about it yep? But it would take a simple government assistance program, partnering with insurance and health care providers to give them the insurance that they need. What we don’t need is to give our healthcare away to the government. The politicians already control much of our retirement and use that to maintain their power. Imagine what they would do if they ran your healthcare like they ran Walter Reed Medical Center.

  • avatar

    Here is my personal bottom line.
    (I’m not speaking on behalf of anyone but me.)

    All Detroit needs to do is, build a car for daily commuting and occasional weekend jaunts that:

    – Provides a solid 10 years of relatively trouble-free ownership. (A worry-free experience.)

    – Averages greater than 30 MPG for “in town” type of commuting / weekend driving.

    – Is fun to drive (and we all know what that means, it’s really not all that subjective).

    – Offers as many standard safety features as possible, no matter the price point.

    – Offers a high level of fit and finish, inside and out. (Quality is not subjective.)

    – Holds its own among its peers regarding value come trade-in time.

    – And call me up after *every* visit (even after an oil change), to be sure I’m satisfied.

    Then, and only then, will I even *begin* to consider possibly purchasing one of your cars.

    Until then, I’ll keep buying cars made by Honda.

    My ’06 Civic is averaging 31.27 MPG across 30 tanks of gas (or 11,251 miles). It’s safe, and cost $18.5K. There’s no reason to expect that it won’t serve me as well as my last Civic, a ’96, which I traded in at 160,000 miles.

    A Honda will be my car of choice for as long as I need to get 20 miles to work each day, and back home, no worries. A Honda will be the car I put my cash into when I want an economical, reliable, fun to drive, car. (And yes, Honda calls me after each service.)

    It’s a fine car for a working class guy like me. I’ve no need to impress anyone with my ride, I just need a solid daily driver. Honda provides that.

    Make all of the excuses you want, Detroit.
    Most folks just don’t care to hear them.

    Don’t bother the consumer (via the press) with whining about this (CAFÉ) this or (you name it) that.

    No one cares about the obscure behind-the-scenes reasons the cars you are offering are not appealing.

    Yea, okay, you build good trucks and SUV’s. Note, however, that the price of oil is climbing–again.

    Hunker down and engineer, build and back, a great car for a reasonable price, that the average person will want.

    That is your business. Build a good car.
    All else are simply distractions.

    Stop the with the friggin’ excuses already.
    Please.

  • avatar
    Bill Wade

    [i]stimpy:
    March 30th, 2007 at 4:25 pm

    The single biggest reason that Detroit is in trouble vis a vis the Japanese: Japanese auto executives are passionate about delighting the customer while American executives are passionate about Quarterly Reports. So long as our manufacturers care more about short-term financials than engineering excellence, they will continue to lose market share. Everything else is irrelevant by comparison. I don’t avoid the domestics because of price, but because they haven’t sweated the details in their product like the Japanese have.[/i]
    Very well put. I lived in Japan for three years. Your post defined the issue quite well.

  • avatar
    Spanish guy

    I have had the freedom to take the initiative to improve my situation through reeducation. Oddly, while that helps, it also increases one’s tax burden…

    All you need to educate (reeducation sounds a bit Orwellian) yourself is an Internet connection a library card and the WILL to learn. Or, as Isaac Asimov said:

    Self-education is, I firmly believe, the only kind of education there is

    James Cameron did not enroll in Film School. He simply went to the Film School library to LEARN on his own. Please think about it.

    What I like about Socialized Medicine, besides unloading the burden from Detroit, is that poor people can get immunizations.

    Please note that socialized Medicine is slavery: Slavery for the healthy person who has to pay other person heart bypass and slavery for the doctor who has to work for the State (the “single-payer”, so the only employer for doctors).

    If socialized medicine would be such a good idea, “socialized everything” should also be a better option. Test drive a Lada or a Trabant to see how wrong this idea is, or get a visa to visit Cuba (Havana looks like London after the Blitz, really).

    …it would not be so bad if our economy ends up like that of Western (i.e., developed) Europe.

    Europe is a mortgaged bankrupt continent. European governments are making promises for the future (healthcare, retirements) they can not keep.

    There are three ways Detroit is screwed that is not their fault. One, we are the only industrialized nation without national health care.

    Well, British infamous National Health Service, stablished just after World War Two, did not help Austin-Morris-MG-Rover-Sunbeam-Triumph-Riley-Standard-Hillman…

    National health care is the only way to save American manufacturing.

    Oh, yes. And provoking a Nuclear Winter is the only way to avoid Global Warming.

    Currency Manipulation is redundant. It is the nature of a bogus fiat monetary system.

    You nailed it, Luther: Our “money” is not real money, and on the lonh run fiat money loses “fiat” (i.e., confidence -read “suckerism”-) and reaches his real worth: Zero.

    Here’s a tip for the Not-so-big 2.5: Open factories in Japan and export to the US.

    I almost spit my coffe on the screen. LOL. And a wickedly intelligent satire. Thank you, Paul.

  • avatar
    SherbornSean

    If there is one tenet that has led me to success, it is to focus on whatI can control, and not worry about what I can’t.

    The US government needs to focus on reducing the federal budget deficit — which is clearly linked to the trade deficit — and stop worrying about who to accuse of currency manipulation.

    Likewise, Lutz et al need to worry about making the best automobiles, and let the finance guys take care of hedging currency risk and the lobbyists take care of governmental relations.

    Duh.

  • avatar
    kablamo

    BostonTeaParty said:
    Japan has been playing games with its currency whether you want to believe it or not, maybe there should be a look at the fair trading rules involving cars importing to the rising sun

    Here we are:

    Case closed.

  • avatar
    kablamo

    “The US government needs to focus on reducing the federal budget deficit — which is clearly linked to the trade deficit — and stop worrying about who to accuse of currency manipulation.”

    Interestingly enough, the countries that really do manipulate their currencies do so by purchasing US dollars, artificially keeping that currency high – and what they do with all those dollars is buy US debt, keeping interest rates moderate which facilitates economic development in the USA and foreign investment from the USA (to places like China).

    The problem with accusations of currency manipulation is that the current situation (which I’m not convinced involves Japan but may) is quite likely the lesser of two evils. Detroit should be careful what they ask for, selling their cars might be more difficult without help from zero percent financing and a growing economy.

  • avatar
    Luther

    Suppose I conquer an island and proclaim it the sovereign nation of Lutherland. I then setup a National Bank and peg my newly created currency 1:1 with the US dollar. I then write the number 1,000,000,000 on a napkin (My legal tender) and attempt to purchase 1,000,000,000 USD at a US bank. Does this sound absurd? Would I be accused of manipulating my currency? This is the real-world global monetary system in action.

    When you are told to think that a country is manipulating their currency, by definition, you are being manipulated into thinking that.

  • avatar
    Matt51

    kablamo:
    we trade based on the Ricardo’s law – but for the mechanism to work, if their is a trade deficit, our currency must weaken, and Japan’s and Cina’s must strengthen. This has not happened, this can only not happen if there is manipulation. Yes, the reinvestment of China and Japan into US treasuries has kept our interest rates low. At some point, the $ will collapse. Other nations will not give us goods such as oil and cars for paper that can collapse overnight. China already is making plain they have all the US $ they want.

    On national health care, by no measure is the US no 1. The Dutch are now growing much taller than the average American due to having better health care. What we really have is AMA unionized health care in the US.

    Walter Reed is not a failure of socialized medicine, it is a measure of greed that an Administration favors tax cuts for the wealthy over funding health care for veterans.

  • avatar
    wsn

    Replying to William C Montgomery:
    Besides, FX rate fluctuation is a double edged sword. The dollar has also been quite weak in recent years. How has that helped The Big 2.5?

    Very good point! The USD is 30% lower vs. the EURO in the past 4 years. GM must have dominated the German auto market.

    The fact is, the Japanese Yen, in the long run (1960~now), has gained 400% against the USD. Yet, Toyota and Honda have won the uphill battle.

    I believe it’s also true for the Chinese Yuan. With global trading, governments can only delay a trend at most, according the originally poster.

    The true problem is with the US government itself. It simply printed too much paper money and thus created a exchange rate pressure. If the US were to be more responsible and protect the value of USD by raising the interest rate back to the historic norm of 7%, such problem will simply dissappear. But then, Bush’s friends wouldn’t be as profitable.

  • avatar
    mike_i_n_mich

    There are many issues the big 2.5 have to deal with the competition does not. Currency may or may not be one of then, but to deny the below items would be to have a severe bias against American Companies, in my opinion.

    Legacy costs: Whoever decided defined benefit plans were a good idea should be shot. Companies come and go with time; the big companies in 1950 were the railroads, in 1900 carriage makers. Tying ones retirement to a company’s long term solvency was stupid. We all know this now, no new companies offer defined benefits, but the government is still trying to save this system, and the big 2.5 are stuck with 100,000s of retirees.

    Legacy cost again: In WW-II the auto companies had a labor shortage, but there were wage controls. In order to create demand for jobs (attract workers) the auto companies offered health benefits to get around the wage controls. The government winked so as to get guns and ammo. The unions expanded these benefits. Health care costs exploded due to new treatments. Now the big 2.5 pays health care for 100,000s of workers and retirees.

    Health care again: Ever wonder how uninsured and indigents get health care in the U.S? Well it is free or heavily subsidized in nearly every hospital, sort of an unofficial national health care system. Who pays? Well those who have insurance or their employers. If the big 2.5 have many more people getting health care, including 100,000s of retirees, then they are paying a disproportionate share of the unofficial national health care bill compared to the foreign carmakers. There is a short term and a long term solution to this competitive disadvantage to the big 2.5. Short term, refund the bill to the big 2.5 from the national treasury; call it the “level manufacturing playing field w.r.t. health care costs act”. We’re talking billions here, by the way. That is, the (forced) charitable component of the big 2.5s health care bill is huge and not shared by the foreign companies. Long term, and this is a Reagan Republican speaking, national health care. I hate the thought, but studies show we are paying more than the rest of the western world and not getting much if anything for it, so let it be. This will go a long way to leveling the playing field between U.S. manufacturing and the rest of the world and my short term fix above will never fly due to the anti-big 2.5 sentiment in this country.

    CAFÉ (Corporate Average Fuel Economy). This law, in existence since the 1970s, says a company must average a certain MPG for their sales weighted car fleet. A different standard applies to light trucks. This law has a disproportionate affect on the big 2.5, and it explains a lot of the big 2.5’s problems.

    First, physics tells us that big cars and trucks get lower fuel economy (F=MA, where Force in a car is the force at the wheels which comes from gasoline. M is the mass of the vehicles). All the inventions in engine and transmission efficiency in the last 30 years, including hybrids, only nibbled at this basic formula.

    The big 2.5 were coming from a fleet and customer base biased toward big cars and trucks. The Foreign carmakers from a base and customer base of small cars. The big 2.5 had to spend billions to meet the law, the Foreigners did not.

    Some say if we “listened” to the CAFÉ law, and its proponents, we would not be in the mess we are in. Maybe true for the last year or two, but for the prior 28 the big 2.5 maximized their profit by “just” meeting CAFÉ. If you look at the data you will see that the big 2.5 CAFÉ numbers hover just below the limit. In reality we lost out on profits by not being able to sell the customer what he wanted. We inflated the cost of big cars to lower demand and sold small cars at a loss of 1000s each to meet this law. The cars we did sell have 100s of dollars of fuel saving technology that the customer will never get a return on. All of this while simply trying to sell to our strength to meet customer demand. The Foreigners did not have to do any of this because their base was in small cars.

    What did the Foreigners do with this windfall? Stole our market for one. They were able to use this cost advantage, and the legacy costs, and the better labor attitude, to sell a better quality car for equal or lower price. There is no secret to quality; it costs money…and the big 2.5 had 1000s less to work with. And now what are the Foreigners doing? Building big cars and now going for the truck market. They have CAFÉ credits from their years of small cars that will allow them to exceed CAFÉ laws for years and steal that market. Thank you U.S. government for helping kill the U.S. auto industry. By the way, the other way to do this, which is done everywhere else in the western world, is by gasoline taxes. But the spineless U.S. government would rather use the CAFÉ blunt instrument, and hide the tax in the auto company’s sales prices, killing the big 2.5 as collateral damage. The big 2.5 has always advocated the high gas tax method. Not because we want to kill our large car market, but because at least this would be a level playing field.

    Not convinced. Try this analogy. Would it make sense to ask Mack Trucks to meet the CAFÉ standards? Of course not. Yet some big 2.5 company’s has always made ½ or more of its sales, and a higher percent of its profits, on trucks, so why was it fair to apply the same standard to that company as to the Foreign company that made small cars?

    One other item. I keep seeing it mentioned that the big 2.5 “gave” the unions their work rules, benefits, etc. Yes, like you give a thief your wallet with a pistol stuck down your throat.

    Enough for now.

  • avatar
    wsn

    mike_i_n_mich, try this analogy:

    GM is the top auto seller in China with lots of profit. I suppose everyone in the US would cheer about that.

    But do you know why the state-owned Chinese auto companies failed? Poor management + legacy costs + no innovation. Sounds familiar? Do you feel remorse for them? Do you think that GM stole their market share?

  • avatar
    mikey

    I just finished reading all the comments.As an outsider it’s not my place to comment on US politics.
    The US senator from Michigan is just being a politician trying [however percived]to look after her people,fair enough.
    I think WINDWORDS post above says it all.
    Here in Canada,we have “universal health care”and it’s a system thats far from perfect.
    The good news is every body is covered for “free”LOL.The rich people hafta to fund it LOL.
    The bad news is who is rich?Well lets see unionized blue collar worker with a middle management wife.Hell these folks are loaded,well tax the living crap out of em!
    Middle aged guys doc says. ya need a triple bypass dude we will put ya on a waiting 18 monthes to 2 yrs that is if you don’t die in the meantime.Or take a second mortgage go down to Buffalo get a US doc to do it for a 100 grand.
    Hey what happened to the free part?
    Think long and hard my US friends.
    Nothing is for free!

  • avatar
    Pch101

    If Japan is “manipulating” the value of the yen, then they are sure doing a poor job of it. In April 1977, there were approx. 275 yen to one dollar; as of the last trading day, there were about 118 yen to the dollar.

    So the dollar has actually fallen in value against the yen by about 57% over that period. These alleged “manipulators” must be thick as bricks, because they are actually achieving the opposite result — the long-term trend has been for the yen to strengthen, not weaken.

    It should be obvious from this factoid alone that the claims of manipulation are purely bogus. It should be equally obvious why some of the Japanese automakers are prospering in the US — they make products that American consumers want to buy. If the Big 2.5 want to turn loss into profit, then they better damn well get to work in making stuff that is worth buying.

    If the Japanese treasury carries a large quantity of dollars, that’s largely because (a) practically every nation in the world holds dollars as their major “reserve currency”, and (b) it is the end result of being good at meeting foreign tastes with your exported goods.

    Incidentally, between the US and Japan, only one of them has tariffs on imported cars. Care to guess who it is? (Hint: It isn’t Japan…)

  • avatar
    mike_i_n_mich

    wsn: good point, “stole our market share” was a bad choice of words. They actually took advantage of a massive subsidy granted them by the U.S government in the form of CAFE, and then things snowballed since as domestic market share declined, the legacy costs grew out of control proportionately.

    I’m not trying to justify the big 2.5, just explain what happended. The margins have never been that big in this industry. But between CAFE costing the US makers billions per year and the Japanese zero, legacy pensions and retiree health costs not born by the Japanese, worker health costs not existing in Japan and lower for thier lower age US workers, pissed off labor, it is a wonder the big 2.5 lasted this long.

    A lot of people on this site like to rail against the bug 2.5 management. They are not perfect, but are as good as any out of the US engineering and business schools, and they come from the best, in my opinion. Given the game the way it has been played in the last 30 years, I think it is amazing they lasted this long.

  • avatar
    cheezeweggie

    I woundnt worry about the Japanese with the Chinese just over the horizon.

  • avatar
    Matt51

    In the 1960’s, the yen was very undervalued. The mechanism where currencies adjust to eliminate trade imbalances terrified the Japanese government. To protect their exports, they vowed to weaken the yen as much as was necessary. If there is an ongoing deficit with Japan or China, as there is, this means there is currency manipulation. This can be done by various simple mechanisms. Clearly some of the posters here never took a class in economics.

    Mike – I would say the US manufacturer’s financial/MBA based management has been clearly inferior to the Japanese engineering based management. Read Maryann Keller’s 1989 book “Rude Awakening”.

  • avatar
    windswords

    # Matt51:
    March 31st, 2007 at 5:30 pm

    Walter Reed is not a failure of socialized medicine, it is a measure of greed that an Administration favors tax cuts for the wealthy over funding health care for veterans.

    Matt51,
    If you looked at the budget for Walter Reed and for VA benefits in general you would find that there was more than enough money for care. The problem wasn’t tax cuts – and by the way since those tax cuts were made revenue has INCREASED due to a growing economy – the problem was buracracy – the same buracracy you and I and everyone else will face if the politicians get a hold of health care.

    You know how it’s ironic that the Japanese learned statistical quality control from an American (Demning) and then used it to make great cars? Well, the original idea of tax cuts to spur economic growth and therefore produce more tax revenue (supply side economics) came from a Democratic icon – JFK. He proposed tax cuts early in his administration and his own treasury dept predicted that revenue would fall to the federal government. But an amazing thing happened. Revenue increased – and some people noticed this, but they weren’t from JFK’s political party. When Reagan cut taxes it doubled revenues – but then the congress just spent more. It would be like me saying I’m gona give you a $50 raise a week and you start spending $75 a week more than before the raise. Then you come back and blame me when you find yourself in debt. So they blamed Reagan for there own lack of fiscal discipline. I’d like to say this is the problem of one party but as we all saw in the last congress they just can’t help themselves. Back in 1995 when I saw the amendment for a required balancing of the federal budget fail by one vote to reach the needed 2/3 majority I knew that we would be eventually doomed. It might take years but without total overhauling of our tax and spend system including social security it’s just a matter of time just like it is with domestic automakers. And Spanish Guy – you rock!

  • avatar
    Pch101

    Matt51: In the 1960’s, the yen was very undervalued. The mechanism where currencies adjust to eliminate trade imbalances terrified the Japanese government. To protect their exports, they vowed to weaken the yen as much as was necessary.

    During the 1960’s, there were no floating exchange rates. The value of the yen, mark, pound and other currencies were pegged to the US dollar under the Bretton Woods system.

    The Japanese weren’t doing anything to weaken the yen during the 1960’s. Between 1945 and 1971, the yen was pegged into the dollar at a constant rate of Y360 to $1.00, and stayed constant until the collapse of Bretton Woods in the early 1970’s.

  • avatar
    mat51

    Pch101:

    What you write is accurate. I never said the Japanese started manipulating the yen in the 1960’s. I said it was very undervalued then. The manipulation started later. The Japanese have been very open about their efforts to control the rise of the yen, what John Mauldin refers to as a “competitive currency devaluation”.

  • avatar
    Pch101

    Matt, you previously stated “To protect their exports, they vowed to weaken the yen as much as was necessary.”

    During the 1960’s, they weren’t in a position to do any such thing, because the pegging was set by Bretton Woods, not by Japan.

    And again, since the collapse of Bretton Woods, the yen has not weakened against the dollar, but has strengthened by a factor of three times. (Y360 to $1 back in 1971, versus about Y120 today.) If that’s manipulation, then they need to get some better manipulators, as they obviously aren’t very good at it.

    Today, the US dollar and the yen are both fully convertible, floating currencies. The free market sets their values. While all governments attempt to manage the value of their currencies to some extent, they have very little ability to do so, because the free market is too large a force for any government to override.

    If you want to reduce US imports from Japan, then you had better get American industry to produce products that don’t need to be imported from Japan. At this juncture, Japan is not a low-cost labor market; the only reason we buy Japanese goods in this day and age is because we prefer them to the US alternatives.

    If US companies can’t or won’t compete, we have only those companies to blame. You can’t fault the American consumer for wanting a better mousetrap, and you certainly can’t fault the Japanese for being smart enough to build a mousetrap that works and fits the bill.

  • avatar
    mat51

    No Pch101-
    Their currency has strenghtened, but it would have strengthened more without manipulation. Anyone who reads any business magazine on a regular basis would be well aware of this. You can get John Mauldin’s newsletter free, where he describes competitive currency devaluation.
    Free trade means zero trade imbalance, as the $ would drop in value, and the Japanese products made in Japan would be less affordable, and a lower $ would make goods made in the US, including from Japanese transplants, more attractive.
    I have never faulted the consumer for preferring Japanese cars.
    The point being, by budget busting spending, and maintaining artifically low interest rates, Japan has been able to maintain factory employment at home. At some point this Ponzi scheme collapses. The currency values will overcome manipulation at some point, as the large trade deficit will not be sustainable.
    But for anyone not to realize Japanese efforts to weaken the yen is arguing from a position of ignorance.

  • avatar
    Pch101

    “Their currency has strenghtened, but it would have strengthened more without manipulation. Anyone who reads any business magazine on a regular basis would be well aware of this. You can get John Mauldin’s newsletter free, where he describes competitive currency devaluation.”

    As a fairly avid reader of the business press, I can fairly repudiate that claim. The currency manipulation charges are populist and political rhetoric, but your average economist would dispute it. As for Mr. Maudlin, he’s just one guy of a billion who writes a newsletter, which doesn’t make him a definitive source on the subject.

    The answer lies in the data — the yen is 300% stronger than it used to be. To illustrate how manipulation is not feasible, Japan cooperated with the US during the 1980’s when Reagan attempted to weaken the dollar in order to improve the US trade deficit. Not only did that move not help the trade deficit, but the dollar eventually returned to its proper value, and went on within a decade to soar in value, thanks to its economic strength.

    The free market establishes the value of the yen and the dollar, first and foremost. If you want to reduce the trade deficit, then the solution is to import less. Obviously, we aren’t willing to do that.

    Meanwhile, Japan has endured a lengthy recession, and is certainly no benchmark of prosperity. Its low interest rates are largely indicative of the absence of growth in its economy and a banking system that can’t swing with the times.

    While Japan makes a concerted effort to run trade surpluses, they succeed at this only because their companies produce stuff that we want. If they made schlock that didn’t meet consumer needs, then they’d probably be in the same import-hungry boat that the US finds itself in today.

  • avatar
    Spanish guy

    From the CIA world factbook:

    euros per US dollar – 0.7964 (2006), 0.8041 (2005), 0.8054 (2004), 0.886 (2003), 1.0626 (2002) https://www.cia.gov/cia/publications/factbook/fields/2076.html

    That´s a 20% depreciation of the U.S. Dollar Vs. the Euro in four years, or 4000 Euros (or Dollars) per 20000 Euros (or Dollars) car.

    If I remember well, the U.S. dollar depreciation since 2000 is still worse.

    Despite this huge exchange advantage, U.S. manufactured cars are still a rare sight in Spain: Many Jeeps and PT cruisers, a few Voyagers, a few, few Cadillacs, a pair of Hummer H3 and Dodge Calibers and that´s it.

    I have not seen a single Corvette in Spanish streets, and Corvetts here have thoy own separate “Cadillac, Corvette, Hummer” dealers.

    Uh. And “Chevrolet” in Spain is now a bargain basement brand on the hood of former Daewoos and Pontiacs are not sold here any longer (some Pontiac Trans Sport vans were sold in the 1990s).

    In fact I have the impression I see more American cars in the Spanish streets from the 1990s than 21st century American cars: Cirrus, Stratus, Neon (lots of Neones…please do not ask me why), Saratoga, Alero, Voyager…even a few Eagles.

  • avatar
    mat51

    For those with an open mind on the subject, do a google search on something like “Japanese Government Currency Devaluation” and there you will find many articles. http://news.bbc.co.uk/1/hi/business/1750379.stm
    “Japan pins hopes on weak yen” and many other related articles.

    US dollar depreciation does not guarantee sale of US cars. It does reduce the deficit, though not necessarily short term, by making it more attractive to invest in the US. Maybe more transplants would locate here, or more farm goods exported. But ultimately, with free trade, trade deficits should be eliminated.

  • avatar
    Pch101

    Since the BBC published that article five years ago, the yen has gained 10% against the dollar. They need to fire the “manipulators” and get some new ones, I suppose.

    In any case, a weak dollar is not particularly good for the US economy, given the degree to which we are dependent on imports with no chance of changing that dependency. To go back to the BBC, here’s an explanation as to how the dollar has gotten to where it is. (In summary, it’s a reflection of the market’s expectations for US economic performance, not based upon what Japan allegedly manipulates: http://news.bbc.co.uk/2/hi/business/4772049.stm

  • avatar
    Jim H

    I was looking at the S. Korean, Hyundai and had some strange thoughts. Why are folks buying those instead of Domestics? Are they even making a dent in the big 2.5? And with the newly established free trade agreement with S. Korea, what message does this send to Detroit?

  • avatar
    mat51

    That was one article of many on the subject, which shows Japan has worried about the strengh of the yen for many years.
    A strong dollar is generally better for a high standard of living, but with our trade imbalance, the dollar is heading lower. Most economists say when the trade deficit is 3% of GDP a currency decline is in order. We are now over 6% which is in uncharted waters. An orderly decline or a collapse?
    Most of the world is now uneasy holding large no. of dollars. They want out. If we have managed our trade deficit better, we never would have gotten into this situation. We never should have let China/Japan get away with what they have done.
    We now run major deficits with all our major trading partners.
    We can make cars. We can’t make enough oil. Which should we make, and which should we import?

  • avatar
    Pch101

    “That was one article of many on the subject, which shows Japan has worried about the strengh of the yen for many years.”

    Every nation in the western world “worries” about these things. The thesaurus would indicate that “worry” is not even close to being the same thing as “manipulation.”

    “We can make cars. We can’t make enough oil. Which should we make, and which should we import?”

    If we are to reduce the trade deficit vis-a-vis automobiles, then we need to build cars that we want to buy.

    So far, it’s Toyota and Honda who seem to be doing the best job of this. Their most popular models, that sell in the highest volumes, are built in the NAFTA zone, primarily in the US.

    And because their cars are more fuel efficient than those built by the Big 2.5, they allow us to import less oil. Buying a typical “domestic” vehicle simply increases US dependency on foreign oil and increases the trade deficit further still.

  • avatar
    mat51

    You are playing word games. Clearly Japan has manipulated their currency to maintain exports. Keep reading the articls on the google list.

    Clearly China has done the same, but with different techniques.

    The large deficits we have are unsustainable.

    How are you going to pay for your Japanese/Chinese imports? (not counting transplants largely made in US).

    I never said which companies would make the cars in the US.

    It may be Hyundai.

    But we cannot continue to import goods and pay with paper money. So which goods must be made here, and which must be imported?

    Nothing is made in China that we cannot make here.

    Nothing is made in Japan that we cannot make here.

    More and more, we are even importing large amounts of food. We must import oil and minerals. As China starts making large airliners, what do we have left to export to pay for what we need?

    By not insisting on currency exchange rates that provides zero deficits with Japan and China; our goverment has created an unstable situation. Even if we chose to start making many of the goods we import, we no longer have the engineers, tool and die makers, and so forth.

    We are now dependent on the goodwill of China and Japan to fund our trade deficits. If they slow down their purchases, we have a dollar collapse.

    And, by having the yen where it should be, the 2.5 would be far more profitable. This is not a level playing field.

    The big three have three major unfair disadvantages: Currency manipulation; having to pay for health care that is provided by the government in Japan; and rebates of value added taxes.

    I too prefer Japanese cars, but I do not have a blind hatred of the big 3. Let there be a level playing field. Hyundai may win it all, who knows?

    Japan has stated they cannot live at 90 yen to the dollar. Do some homework.

  • avatar
    Pch101

    “Clearly Japan has manipulated their currency to maintain exports.”

    That’s about as clear as mud. I don’t see any evidence that Japan does anything more to “manipulate” anything than does any other country that also has a floating, convertible currency. Holding dollars in its treasury or trying to export goods is not a sign of “manipulation.”

    “Clearly China has done the same, but with different techniques.”

    Unlike the yen, the Chinese yuan is NOT a floating currency. Apples and oranges.

    “Japan has stated they cannot live at 90 yen to the dollar. Do some homework.”

    You continually confuse the desire to have a moderately valued yen with the ability to actually do something about it. Ultimately, it is the free market that determines the value of the yen.

    “I never said which companies would make the cars in the US.”

    They are already making the cars here. An Ohio-made Honda does far more to reduce the trade deficit than does a Mexican-built Chrysler or a Korean-built Chevy.

  • avatar
    Matt51

    http://www.investorsinsight.com/

    For a free subscription to John Mauldins newsletter. He answers personal email.

    I do not have to prove to you Japan is manipulating prices in these few words -because clearly your mind is closed. I am sending this information for those with open minds.

    And your last statement “They are already making the cars here. An Ohio-made Honda does far more to reduce the trade deficit than does a Mexican-built Chrysler or a Korean-built Chevy.”

    Who said they were not making cars here? I was merely saying domestic production does not have to be the big 3.

    And you never addressed the key points – why should we allow an unfair trading position for the Japanese? And why not insist on an exchange rate that gives an essentially zero trade deficit? Again, no one is saying the Japanese have to buy Detroit cars.

    But my comments are for others who are objective. You are not.

  • avatar
    Matt51

    http://www.geocities.com/eureka/concourse/8751/versib/ai120401.htm
    even hedge funds can manipulate currencies.

    George Soros has done it.

    Certainly the govermnent of Japan can do it. Why Congress is taking a hard look at the current exchange rate, which seems not to be based on our relative trade deficit as it should be.

    http://ipezone.blogspot.com/2007/03/as-american-as-apple-pie-toyota.html
    comments by Stabenow on manipulation

    http://money.cnn.com/2006/04/27/news/companies/bigthree_bush/index.htm
    the big 3 case to Bush
    While much has been made about the dollar’s relatively fixed exchange rate with China’s yuan, the Big Three are more concerned about what they see as intervention by the Japanese to keep the yen relatively low compared to the dollar. That gives Japanese manufacturers a price advantage when selling to the U.S. consumers. Wagoner and LaSorda have both spoken out on the issue in recent months.

    “Currency manipulation is adding billions to the bottom line of the Asian manufacturers,” said the auto industry source discussing the upcoming White House meeting.

    Chinese manipulation:
    Democratic Senator Chuck Schumer and his Republican colleague Lindsey Graham led one anti-China charge in the outgoing Congress, but dropped a threat to slap a punitive tariff on Chinese imports to give Paulson’s dialogue a chance.
    In light of the latest Treasury report, they signaled in a joint statement that their patience was wearing thin.
    ‘The administration continues to use technical and legalistic dodges to avoid saying what everyone knows to be true—the Chinese manipulate their currency. It’s as plain as the nose on your face,’ the senators said.
    ‘The Chinese cannot be part of the international community on their terms alone. They need to be pressed to play by the rules and that means putting an end to currency manipulation.’
    Having shelved their tariffs bill, Schumer and Graham have pledged to work with other senior figures like Baucus to find a consensual approach to taking China to task.
    One bill sponsored by Representatives Tim Ryan (Democrat) and Duncan Hunter (Republican) would add currency manipulation to the list of unfair trade practices that can be punished under US trade law.
    http://www.newagebd.com/2006/dec/21/busi.html

    http://www.house.gov/list/press/mi05_kildee/pr_100505JPNCurrency.html
    discussion on Japanese currency intervention.

    There are so many references available on the internet. ALl the Bank of Japan has to do is buy dollars and sell yen.

    I am incredulous anyone would make the argument Japan is not capable of currency intervention.

    I would like to see a quote by any reputable economist stating that fact. Provide a reference to any Business Week or Fortune magazine article making that point.

    Incredible!

  • avatar
    Pch101

    “I do not have to prove to you Japan is manipulating prices in these few words -because clearly your mind is closed.”

    You are unable to prove it. You’ve provided no evidence whatsoever, and a fair bit of data that is simply wrong. I’ve illustrated that the yen has tripled in value since the end of currency pegging, and noted that it is the free market that is largely responsible for setting exchange rates of currencies that float, such as the dollar and the yen.

    “why should we allow an unfair trading position for the Japanese?”

    The only unfair trading position is the one held by the US. The US has a 25% tariff on imported trucks; Japan has zero tariff. The US has a 2.5% tariff on cars; Japan has none.

    The problem with the US auto industry is that it makes cars that people don’t want. Most of these cars aren’t terribly popular here. Why would the Japanese possibly want them, when their steering gear is on the wrong side of the car, when they use more fuel, take up more valuable space and are less reliable?

    The Japanese have even less reason to like our cars than we do. And as the US declining market share of the Big 2.5 would indicate, we don’t like them, either.

  • avatar
    Matt51

    The difference between China and Japan is not apples and oranges. The US does not recognie a fixed exhange rate with China – China manipulates its currency to maintain a fixed exchange rate. Japan allowsw a float but only in a range acceptable to Japan. Both countries are rich enough to do this.

    I have provided links to hedge fund manipulation.

    All one has to do in Google is type Chinese currency devaluation or Japan currency manipulation and you geta wealth of articles on the subject.

    You have provided zero references.
    You have not explained why we should allow Japanese auto companies 3 major advantages.
    You have not explained why, under free trade, Japan can maintain such a massive trade surplus with the US.

    You state a point over and over, with no proof to back you up, other than to state Japans cuurency has strenghened over the decades.

    As I prefer Japanese cars,I am not sure I want to argue the case for big 3 cars. However, I assure you, if they were allowed to put 3000-5000 dollars more content per car, they would be more competitve. They have to design to a price point, which, given more budget, each and every one of their cars would be nicer.

  • avatar
    Pch101

    “The difference between China and Japan is not apples and oranges. The US does not recognie a fixed exhange rate with China”

    Matt, it is not up to the US to “recognize” anything. The yen floats; the yuan is pegged. (The yuan used to be pegged to the dollar; now, it is pegged to a basket of currencies.)

    What you don’t seem to understand is that no nation can manage its exchange rates to a degree that the market won’t allow. While governments can attempt to create artificially high or low rates of exchange over the short run, the market will eventually catch up to them. (Witness the implosion of Argentina, which used an exaggerated flawed method of dollar pegging that eventually collapsed the value of the peso that had been propped up arbitrarily.) You can fool the market for a short period of time, but not forever.

    All that, and the yen still floats, just as the dollar floats. China and Japan are different countries, and maintain different monetary policies. They may look the same to you, but they are quite different.

    “All one has to do in Google is type Chinese currency devaluation or Japan currency manipulation and you get a…”

    …bunch of conspiracy websites from anonymous internet wackos who provide bad sources, misinterpret mainstream data (confusing exports with “manipulation”, for example) and generally don’t know what they’re talking about.

    Type in “9/11 conspiracy” and you’ll find plenty of sites claiming that the CIA, Israeli intelligence or space aliens attacked the World Trade Center. Finding it with Google doesn’t make it true.

    “You state a point over and over, with no proof to back you up, other than to state Japans cuurency has strenghened over the decades.”

    The fact that the yen has tripled in value is a simple fact that is easily verified on your own. Exchange rates are easily obtained from a variety of reputable sources, and you can see that the yen has tripled in value from the rate that had been pegged under Bretton Woods.

    “You have not explained why, under free trade, Japan can maintain such a massive trade surplus with the US.”

    Of course I have, and it’s basic common sense: Trade deficits are created by importing more than one exports. Obviously, if you want to eliminate the trade deficit, you need to export more and import less.

    The US auto industry makes cars that consumers don’t want, while the “imports” (many of which are now built in the US, and don’t contribute to the trade deficit) do make cars that we want. If you want proof of that, the falling market share of the “domestics” tells you this very plainly. (Google it if you like.)

    These same cars built by the Big 2.5 are also not particularly suitable for export, given that they are not made to the tastes of most foreign markets. So it’s no surprise that they don’t sell well elsewhere.

    Japan has an economic policy centered on developing export markets. It’s a great plan, but it wouldn’t work unless Japanese companies built things that others wanted to buy. Fortunately for the Japanese government, many (not all) of their companies do an outstanding job of making goods that others want to buy. Despite the rhetoric, the Japanese government can’t force exported Japanese goods down the throats of consumers outside of Japan — those companies have to earn that business. US companies need to do the same if it wants to be just as successful.

    “if they were allowed to put 3000-5000 dollars more content per car, they would be more competitve.”

    “Allowed”? Last time I checked, the Japanese government wasn’t on GM’s payroll and it didn’t participate in Ford’s product development. These companies have management teams that are quite capable of running their businesses into the ground without help from others.

    You don’t need Google to know that if a company makes products that consumers don’t want, its sales are going to fall and the competition will get stronger. The Detroit automakers had a long and not-so-glorious history of producing products that disappointed what had once been a captive market, which gave an opportunity to their competitors to do better. Many foreign automakers failed to meet that challenge (Renault, Peugeot, Citroen, FIAT, Yugo and Daihatsu — you see, even the Japanese don’t always get it right), but some have obviously done well. Those that prospered here did so because they met US market needs, won over new customers and built brand loyalty with their products and services.

  • avatar
    Spanish guy

    Many foreign automakers failed to meet that challenge (Renault, Peugeot, Citroen, FIAT, Yugo and Daihatsu

    Yes, certainly, but do not forget the multi-branded (MG, Austin, Plymouth Cricket…) British failure trying to sell cars profitabily in the USA.

    The last failure was the purpose created “Sterling” brand, a total flop. To make things still worse, Sterlings (i.e., Rover 800s) were rebadged and British built Honda Legends, sold with great success in the USA as Acuras while Sterling failed with virtually the same car, but built by Unionized British wokforce.

    http://www.austin-rover.co.uk/ (see “marques” and “Sterling”)

    http://en.wikipedia.org/wiki/Sterling_%28car%29

  • avatar
    Matt51

    Lets see – if there is a trade imbalance, one currency is supposed to strengthen and the other weaken until there is zero trade balance. Yes that is the key to free trade.

    Under Paul Volker, US interest rates were set very high, and the dollar strengthened dramatically. Oh, but you say this can’t happen. Was there not cause and effect? Cleary the Fed’s action impacted the currency exchange rates. But Japan cannot do the same?

    Japan, under prodding from US, allowed their currency to strengthen – to a point.

    OK, time now for some fairy tales-

    China’s currency is really a different situation than Japan’s.

    While George Soros and hedge funds do manipulate currencies, Japanese politicians for some reason are different than any other on earth. If the Japanese yen is shoved higher, and all Japan inc is shut down, they would stand idly by. Despite having the largest foreign reserves on earth, they would not buy dollars and sell yen, or keep their interest rates artificially low. They would just say nothing could be done because PCH says it can’t be done.

    And Elvis is living in Las Vegas incognito.

    And the Easter bunny is going to bring us all chocolate eggs this Sunday.

    And slim gray aliens beamed PCH up for an evaluation.


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