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Toyota Feels Exchange-Rate Pinch as Rivals Gain

September 2, 2010
3 min to read


TOKYO — For all the turmoil over Toyota’s wave of recalls, the company, the world’s largest automaker, may face a bigger problem: the surging yen.


With the yen at 15-year highs against the dollar, a 9-year peak versus the euro and still near recent heights against the won, Toyota is finding that its cars have become too expensive to compete in the increasingly cutthroat global auto market, reported The New York Times. That has created inroads around the world for its non-Japanese rivals, like Volkswagen of Germany, Hyundai of South Korea and the Detroit automakers, all of which are benefiting from relatively weaker currencies.

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Hyundai is rapidly increasing its share in major markets, including the United States and China, using record profit to offer aggressive sales incentives that Toyota is struggling to match.


Volkswagen continues to dominate in Europe and across much of the Asia-Pacific region. Its chief executive, Martin Winterkorn, has said the automaker aims to be the world’s largest in sales by 2018, up from its current third place.


Analysts say the yen, which started soaring as a refuge currency in late 2008 in response to the global financial crisis, has highlighted a flaw in Toyota’s global production setup. The problem, they say, is that the company depends too heavily on factories and suppliers in its high-cost homeland.


Although Toyota is taking steps to improve the ratio, about half of its cars are still assembled in Japan, many of them then shipped overseas.


“Before the yen’s surge, Toyota got by with exporting lots of cars, even though it was aware that posed a big currency risk,” said Takashi Akiyama, vice president at SC-Abeam Automotive Consulting, based in Tokyo.

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“They held out for as long as they could, but now they’re seeing the consequences of stalling,” Mr. Akiyama said.


Other big Japanese exporters, like Honda, Nissan, Sony and Canon, feel the yen’s burden, too. The country’s export growth slowed for the fifth consecutive month in July, weighed down by the strong yen. But because they have moved more of their production overseas in recent years, those companies suffer much less from currency imbalances.


The difference is laid bare in a startling statistic: For every yen that the Japanese currency gains in value against its assumed dollar rate of ¥90, Toyota says, it loses ¥30 billion, or $357 million, in operating profit. If the exchange rate stays at the current ¥84 to a dollar, Toyota’s operating profit for its financial year ending next March, which the company forecasts will reach ¥330 billion, could fall by half.


By that same measure, Nissan says it loses only half as much for each yen’s gain against the dollar — about ¥15 billion yen. Sony loses but ¥2 billion.

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