Yen vs. Dollar/Euro: Both US and European automakers feeling the pinch
Most people looking to purchase a Toyota or Nissan just don't care about the value of the Yen vs. the Dollar. It just isn't relevant. For automakers here and in Europe, however, it's a very big deal. The Auto Trade Policy Council estimates a Japanese auto manufacturer advantage of $9,000 on luxury vehicles imported from Japan and $2,000 on lower-end imports. Japanese manufacturers have smartly used the imbalance to add content to their products while maintaining the price of their competition. Customers are getting more for their money and Toyota, Honda and company are getting lauded for high quality materials.
The Yen is worth less than the Dollar because the current national interest rate in Japan is .5 percent, close to what the rate was in the US only a couple years ago. Right now, however, the US interest rate is at 5.25 percent. In Europe, the rate is 3.5%. Investors borrow Yen at low rates then sell the currency and put the money into higher interest accounts like US treasury bonds. As a result, the yen is devalued by up to 25% and Japanese goods are cheaper for Americans.
[Source: Detroit Free Press]
The Jetta has trouble competing against the Civic on price alone
The European manufacturers have even more trouble competing against the Japanese currency juggernaut. High-dollar BMW and Mercedes can hang with the likes of Lexus, but high-volume manufacturers can't even keep up with the prices of US automakers much less the Japanese. The reason is the extremely high value of the Euro. VW makes great cars and they even have a "three for less than $17,000" ad but when content is added the price skyrockets. Put the Civic next to the Jetta in a price vs. content contest and the Civic wins. It's not as big a deal for VW here in the US as it is in their home market, where Japanese automakers are eating up market-share.
In the US some are saying the Democratic Congress will look to erase the currency deficit to protect domestic automakers, but other than making an open plea to the Japanese government to raise interest rates the only other option is a tariff. That just doesn't jive that well with the whole "free trade" principal that makes the US so attractive to manufacturers the world over.
In the end, even the Japanese automakers are vulnerable to still lower-cost automakers. Many reviews of the Yaris have been less than glowing because of cheap materials and poor performance. To me that means Toyota has to sweat a bit to make a top-notch vehicle for $13,000. Hyundai won't have the same problems. Due to cheap labor and even cheaper currency, they'll be able to produce the same vehicle with better materials for less money. Ford, GM and others will have to make their small cars in Mexico or China to compete and the US consumer will win: unless they make their money in manufacturing.
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Reader Comments (Page 1 of 2)
blitzkrieg79 9:43AM (2/26/2007)
I like Japanese cars but I may not be an economy expert but I don't think that this is good over the long run for USA, if the Asians devalue their currency on purpose why can't USA impose some kind of tax on imports from those countries. I know it's globalization but frankly 50 years from now it's the US that will be the 3rd world country.
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Michael Karesh 9:59AM (2/26/2007)
This is the cost of the U.S. government's huge budget deficits, courtesy of tax cuts and Iraq. You can't borrow trillions of dollars from Asia and not expect the Japanese and Chinese currencies to not be devalued as a result.
The much greater willingness of Americans to take on huge amounts of debt to buy stuff is also a factor. Japan can have a low interest rate because people there save a large portion of their income no matter what the rate is. Meanwhile, despite the much higher interest rates in the U.S. Americans have a negative savings rate.
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Petey 9:59AM (2/26/2007)
So, this is the reason why American made Camrys are outselling the Mexican made Fusion?
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Frustrated Consumer 10:02AM (2/26/2007)
Don't forget though we wouldn't be able to afford our HUGE deficits if people weren't willing to buy our bonds. The figures I've read are somewhere between 20-30% of our current debt is financed by East Asia. So we do get some benefit...
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Steve 10:04AM (2/26/2007)
Free trade is fine as long as it's equal. Add a tarrif on imports until the Japanese stop manipulation of their currency and give US companies access to Japanese buyers. Allow US companies to build factories in Japan.
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Michael Karesh 10:15AM (2/26/2007)
A huge amount of our debt is financed by China and Japan. We buy their products, they buy our IOUs.
There are no laws preventing U.S. companies from building factories in Japan. GM and Ford have both controlled Japanese companies with factories in Japan. The real problem is making a product that Japanese consumers want to buy. The rest is just excuses.
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David 10:33AM (2/26/2007)
"Ford, GM and others will have to make their small cars in Mexico or China to compete and the US consumer will win: unless they make their money in manufacturing."
Funny that more and more "Asian imports" are made in the USA and Canada.
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Shawn 10:19AM (2/26/2007)
To the Japanese, they own the big fat Americans. We work for them and we buy from them.
Let's face it, USA is no longer a sovereign nation. We are a colony of workers and consumers for the Japanese. That's okay with many Americans, so I guess we have nothing to complain about.
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wally 10:25AM (2/26/2007)
#3 Petey you finally get it!!!!! It's not where the car is made IT'S WHERE THE MONEY GOES!!!! "FOLLOW THE MONEY TRAIL"
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xyzzy 10:31AM (2/26/2007)
Ten years ago the yen was much stronger than the dollar. The Japanese mfrs were hurting badly and imported cars were ridiculously expensive. Decontented cars such as the 1997 Camry were introduced. Now, they're doing well and the Europeans are hurting.
Just a few more years, things will likely change again. In the meantime hedge your currency bets.
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Evan Brom 10:39AM (2/26/2007)
This is just a side effect of deficit spending. It causes crowding out thus higher interest rates. Although a equilibrium should be reached to eliminate this arbitrage situation.
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C.G. 10:43AM (2/26/2007)
The budget deficit has NOTHING to do with this. It has more to do with our economy and its strength vs the strength of others. The article clearly states that this is a result of interest rates. Currency fluctuations are the result of economic factors more so than the budget, Iraq, or taxes. BTW, China's currency is directly pegged to our own (which is not fair and should be addressed) but you can't say that they are the ones doing the manipulating because if they do, they lose out. Furthermore, to suggest that "they" are behind all this is stupid. I'm an investor just like you are and I could borrow Yen, sell it, and buy bonds too... its free money if you think about it. Who wouldn't do that? If you borrow cash at .5% interest and use it to buy a bond that GIVES you 5.25%, you would do it.
Don't smear the conversation by including politics that don't matter. Iraq doesn't matter, the budget doesn't matter, and certainly tax cuts - which only stimulate the economy - don't matter either.
While there isn't free trade by the Asian community, we have tariffs on their imports so is that fair too? To say we are being fair is hypocritical. Maybe the EU should worry about getting rid of their high unemployment by eliminating their socialist services to generate wealth that can increase the value of their currency. Maybe Japan can get their economy going so they don't have to have such low interest rates; remember, low interest rates inhibit savings and spur spending - just what you need when your economy is weak.
Take Econ 101 before you throw your political nonsense into the conversation.
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moogy 11:08AM (2/26/2007)
I think it's about time the west wakes up. Stop thinking the world revolves around the US. The rest of the world want less and less to do with the US. Cuba is buying cars and everything from China, so the US embargo is that effective anymore. Asia owns the US from a financial side, this is very dangerous.
If the US goes the same way Argentina did... it's going to be very bad... For them
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Tagg 11:10AM (2/26/2007)
Enough of this "Toyota makes more cars in the U.S. than Ford or GM" B.S.! More than half the cars sold by Toyota in the U.S. last year were built in Japan. Look it up, Toyota is now importing more and more of their products. As far as I know only the Camry, Tundra, Sequoia, and Tacoma, are built here in the U.S. Maybe there's more but thats all I can remeber off hand.
As for the bad exchange rate, so Iraq and tax cuts is what hurts our exchange with Yen? Why doesn't it hurt the Dollars value against the Euro or British Pound, why just the Yen? Even Chinese Yuan has a more favorable exchange with the Dollar and they flat out fix that at around 8 Yuan for 1 Dollar!
There no laws prohibiting the building of factories in Japan but the tax and legalities of builing a factory there make it very, very difficult. The Japanese, contrary to the beleif of some here do like many of our cars such as the Mustang. So unfortunately there is alot more to it than just excuses.
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EnviroBob 11:05AM (2/26/2007)
#12- Amen
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nagmashot 11:09AM (2/26/2007)
>>>It's not as big a deal for VW here in the US as it is in their home market, where Japanese automakers are eating up market-share.
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nagmashot 11:10AM (2/26/2007)
It's not as big a deal for VW here in the US as it is in their home market, where Japanese automakers are eating up market-share.
Do better research... Japanese Import to German car market is only 10% of the complet market volume. The Import volume droped in 1/2007 by 7%. Here they are a footnote at best... nothing VW needs to worry about.
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Silver 11:34AM (2/26/2007)
Ahh, there's always SOMETHING to explain why America can't build a competitive automobile (particularly one without an offensively cheap-o interior).
Looks like this week the excuse is currency valuations.
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Lithous 11:16AM (2/26/2007)
"So, this is the reason why American made Camrys are outselling the Mexican made Fusion?"
Of course you left out 3 vehicles that could easily be cross shopped with the Camry. Was this on purpose or because you are full of bovine feces?
Aura, G6 and Malibu.
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Lithous 11:50AM (2/26/2007)
"Ahh, there's always SOMETHING to explain why America can't build a competitive automobile (particularly one without an offensively cheap-o interior)."
There you go, an opening for you to make millions. That is how it works. You can (at least you act like) make a better interior for the same cost as GM's and Ford's suppliers then you put in your company to bid on the contract. This is super, I can't wait for all the new interiors your company is going to make!! You are going to save GM and Ford from their ugly interiors single handedly. No wait, why am I so excited, you are import fanboy # 3927 who complains but doesn't capitalize on the situation. Oh well. All talk and no action.
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