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.