Ford Motor Company (F) Is Still Angry About Japan’s Yen

Ford’s strong new Fusion has been stealing sales from Toyota Motor Corporation (ADR) (NYSE:TM)’s Camry all year — but now Toyota is in a prime position to push back, thanks to the Japanese government. Photo credit: Ford Motor Company (NYSE:F).

Building on concerns expressed by CEO Alan Mulally back in June, Ford Motor Company (NYSE:F)’s Americas chief, Joe Hinrichs, told Bloomberg this week that the weakened yen was allowing Ford Motor Company (NYSE:F)’s Japanese rivals to crank up imports — just as Ford Motor Company (NYSE:F)’s own factories are straining to keep up with demand.

What’s the deal? And is this really likely to hurt Ford Motor Company (NYSE:F)?

How an exchange-rate shift can give Toyota a big advantage over Ford
Here’s the background. Starting late last year, Japan’s government made a series of moves to “devalue” the yen — to make it worth less versus currencies like the U.S. dollar and the euro. The idea was to help boost Japan’s economy, by making it easier for Japanese companies to compete in export markets.

How does that work? Well, when we say the yen has been devalued, what we mean is that the exchange rates have moved in such a way that companies such as Toyota Motor Corporation (ADR) (NYSE:TM) can get more yen for the dollars they earn in places like the United States.

At the beginning of 2013, one dollar bought about 86 yen. Now, a dollar would buy almost 99 yen. That means that every dollar earned by a Japanese company in the U.S. is worth more money at home. And that means the Japanese companies can charge fewer dollars for their products and still have a nice profit when those dollars are converted to yen.

For a company such as Toyota Motor Corporation (ADR) (NYSE:TM) or Honda Motor Co Ltd (ADR) (NYSE:HMC) that has the ability to produce cars in both the U.S. and Japan, it also means that it may be cheaper at the moment — meaning more profitable — to build cars in Japan and send them over here.

That doesn’t mean Toyota Motor Corporation (ADR) (NYSE:TM) or the other Japanese automakers will stop building cars in their U.S. factories. But it does mean that they can ship extra cars over here, giving their dealers more to sell — at, possibly, lower prices.