For years, Detroit automakers would argue that the Japanese yen was artificially devalued, and that the value of the currency was a big competitive advantage to the likes of Toyota and Honda. To erase this gap, The Detroit Three pressured suppliers to lower costs in any way possible, which caused ill-will within their supply bases. In fact, Japanese automakers routinely scored higher in supplier relation studies, while General Motors, Ford and Chrysler hovered at the bottom of the list.
One massive global recession and a fast-rising yen later, it appears that the shoe is on the other foot. Automotive News reports that Toyota has made it clear to its 219 largest domestic suppliers that costs must be cut or business will be lost to countries with cheaper labor.
Toyota reportedly loses $343 million in profit for every one yen the currency rises against the dollar. Given that the Japanese currency has risen by 13 versus the dollar over the past year, Toyota could be looking at a staggering $4.5 billion in losses. For perspective, that's more than half of Toyota's total research and development spending for any given year. Ouch.
And Toyota isn't alone in looking for ways to combat the rising yen. Honda recently announced that it was going to build more vehicles outside of Japan. Nissan CEO Carlos Ghosn recently asked the Japanese government to adjust the issue of the rising yen, or risk losing a great deal of the country's industrial base.
Given its currency conundrum, we can't blame Toyota for looking for more cost-effective ways to build vehicles. But when GM, Ford and Chrysler were in the same predicament, corners were cut and many vehicles were less competitive than they could and should have been. As a result, The Detroit Three had to add heavy incentives just to move product and their reputations suffered. Here's hoping history doesn't repeat itself.