General Motors Company (GM), Ford Motor Company (F): How American Autos Could Suffer

Ford Motor Company (NYSE:F)‘s CEO Alan Mulally has labeled Japan a “currency manipulator.” Since December, the value of the yen has dropped precipitously against the US dollar, largely due to the policies of Japan’s newly elected Prime Minister Shinzo Abe.

Ford Motor Company (NYSE:F), an American manufacturer that competes largely against Japanese companies, is uniquely positioned to suffer from a cheap yen, as is its major American rival General Motors Company (NYSE:GM).

The weakening yen

Since December, the value of the Japanese yen has been falling against the US dollar. Last November, the pair was trading around 80 yen to a dollar. Today, the exchange rate is around 97, and has recently been as high as 103.

In total, that represents a roughly 20% devaluation of the yen against the dollar in just over 6 months. A pretty rapid shift.

But is Japan a currency manipulator? The G7 doesn’t think so. In May, the group of seven nations declined to give Japan that dreaded label, instead arguing that Japan’s recent efforts have been based on stimulating domestic consumption — not boosting exports.

Prior to his election, Shinzo Abe had pledged to aggressively push policies intended to end Japan’s two decades of deflation. Japan’s Nikkei 225 stock index rallied to nearly 40,000 in 1989, but has never come close since (it currently trades around 13,000).

But even if recent policies are aimed at fighting deflation, there is no denying that many Japanese companies benefit from a weaker yen. Japan’s economy remains highly dependent on exports, and a weaker yen makes the goods produced by these exporters more attractive to foreign buyers.

US auto stocks have held up

Mulally isn’t the first American CEO to criticize Japan’s monetary policy. In 2003, GM’s (then CEO) Rick Wagoner made very similar statements. But back then, it was even worse — the dollar/yen was trading around 120.

In February, I suggested that the American auto companies could be pressured by a falling yen. So far, I’ve been wrong. Since the beginning of March, shares of both General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have rallied nearly 18%, roughly tripling the performance of S&P 500.

But with Mulally making comments now, it could be a sign that Ford Motor Company (NYSE:F) is finally starting to feel pressured.

In March, when the dollar/yen was near 90, analysts at Morgan Stanley estimated that Toyota Motor Corporation (ADR) (NYSE:TM) was getting a benefit of some $1,500 per car. While that might not seem like a lot, it could certainly add up over time. Particularly if the yen continues to weaken.