Is This Currency Crash a Big Risk to U.S. Automakers?

   on January 21 2013 12:52 PM
Newly built cars sit in a shipping lot near General Motors Car assembly plant in Oshawa
Newly built cars sit in a shipping lot near a General Motors assembly plant in Oshawa, Ontario, Canada. Reuters

Every one yen drop against the U.S. dollar boosts Toyota’s (NYSE:TM) operating profit by $391 million dollars, reports Bloomberg. That bottom-line bump allows them to offer buyer incentives at a tremendous advantage to its American auto counterparts — a.k.a the Detroit Three. With that in mind, the value of the yen has fallen tremendously over the past few months, with the dollar trading for 78 yen in July, and 90 yen in January.

The situation understandably has American manufacturers against a wall. General Motors (NYSE:GM) and Ford (NYSE:F) both saw their market shares shrink last year as the overall market grew at a healthy rate around it. GM fell from 19.6 percent of the U.S. market in 2011, to 17.9 percent in 2012, while Ford fell from 16.8 percent to 15.5 percent. Chrysler increased its share from 10.7 to 11.1 percent.

Meanwhile, Toyota grew its market share from 12.9 to 14.4 percent, and Honda (NYSE:HMC) grew from 9.0 to 9.8 percent of the market. Nissan’s market share fell from 8.2 to 7.9. Concerned that the weak yen is handicapping their competitiveness, the Detroit Three have asked that the Obama administration to intervene.

Some U.S. automakers, researchers, and policymakers have argued that Japan’s “beggar thy neighbor” policies “distort trade by cheapening the value of the yen to promote economic growth in Japan at the expense of its trading partners.” Matt Blunt, president of the of the American Automotive Policy Council, which represents GM, Ford, and Chrysler, told Detroit News that “these types of policies have inflicted tremendous harm on the U.S. economy, and especially our manufacturing sector, in the past. We urge the Obama Administration to make it clear to Japan that such policies are unacceptable and will be met by reciprocal measures.”

The threat of the weak yen amplifies concerns about GM’s sales volume for 2013. Already bumped down to second-largest automaker in the world by Toyota, GM has cited weakness in Europe and more modest domestic sales as trends for this year. Presented with an advantage through the weakness of their currency, Japanese automakers would press the advantage and continue to take U.S. market share at the expense of American manufacturers. Understandably, Ford and GM want to avoid this. Japanese auto companies are urging their government to push for as much as 100 yen per dollar.

GM ended last week lower than it started, while Ford was essentially flat.

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