For Ford, Japan’s Economic Policy Is an Unfair Disadvantage
Ford’s (NYSE:F) vehicles have been selling exceedingly well, but that hasn’t stopped Ford’s Joe Hinrichs — who heads up Ford North America — from becoming increasingly vocal about the advantage that Japanese manufacturers have, notably Toyota (NYSE:TM), due to the intentionally weak state of the Japanese Yen.
During a talk at the Economic Club of Chicago, Hinrichs said Ford would “urge Congress to oppose a TPP [Trans-Pacific Partnership] if it does not include strong currency disciplines,” Automotive News quotes him as saying.
“When Toyota came out and said half their profits are due to currency change of the yen, that’s a big deal. They said that,” Hinrichs told reporters after the speech. “When [Toyota President] Akio [Toyoda] came out in support of [Japanese Prime Minister Shinzo] Abe saying we need a weaker currency, that’s a corporate policy statement.”
Japan’s economy is largely export-based, and to help recover from the financial crisis — and the massive tsunami that paralyzed a swath of Japan’s economy — Shinzo Abe has allowed the yen to slide in order for Japan’s multinationals to gain a favorable price advantage abroad. Naturally, it’s been troublesome for companies competing against the changing currency climate.
“Toyota and [Renault Nissan Chairman Carlos] Ghosn said we need a weaker currency and the currency got weaker,” said Hinrichs. “Morgan Stanley estimated that the recent fall in the yen puts roughly $2,000 per export vehicle into the pockets of Japan’s three biggest automakers.”
“Of course, every country has a right to conduct sound monetary policy,” Hinrichs went on. “That includes legitimate strategies like quantitative easing. But direct currency intervention cannot be tolerated in the 21st Century,” he concluded.
The tactics are working for Toyota, though. The company reported its quarterly results earlier this week, and Toyota logged a foreign exchange gain of 260 billion yen ($2.47 billion) for the period. Over the past year, the yen has slide against the dollar about 23 percent.
Toyota also maintains that its strategy of localizing production will help the company negate risks associated with currency swings, rather than take advantage of them. In the event that the yen gains on the dollar, Toyota’s strategy would help protect its business from the fallout.
Bob Carter, senior vice president of automotive operations at Toyota Motor Sales, said prior to Hinrichs’ statements that Toyota’s profits are not dependent on currency advantages. ”We don’t run our business on currency,” Carter told reporters in Chicago.
Former Fed Chair Ben Bernanke, however, has noted that Japan’s actions are not a malicious attempt to put others at a disadvantage, but rather a maneuver that other countries may conceivably resort to if they were in the same position.
Japan is “not manipulating their exchange rate, they are not directly trying to set their exchange rate at a given level,” Bernanke told a House Financial Services Committee in July of last year. “What they are doing is engaging in strong domestic monetary policy measures, trying to break the deflation they’ve had for about 15 years, and a side effect of that is that the yen has weakened.”
Hinrichs isn’t satisfied, though, and is pushing for changes that would make the U.S. more tax-friendly for American companies, and a coherent manufacturing policy. ”The U.S. corporate tax burden is among the highest in the world, which limits our competitiveness,” he said. “A lower tax rate would help Ford invest in jobs at home, accelerate new technologies, and deliver best-in-class vehicles.”