Japanese Automakers Look to Cut Export Costs as Yen Reaches 15 Year High

As the yen’s worth climbs, it’s becoming harder for Japanese companies to make a profit on cars they build for export to the U.S. and elsewhere.

Toyota Motor Corporation is trying to lower the cost of producing its popular Yaris and Corolla models in order to make them more affordable in the U.S. Atsushi Niimi, executive vice president for global manufacturing at Toyota, said, “Given the current exchange-rate situation, it isn’t feasible, in terms of a business model, for us to produce Corolla or Yaris in Japan and export them. We’re working very hard to reduce costs to maintain the appeal of these cars.”

Toyota’s domestic rivals are also struggling to combat the effects of the rising value of the yen, which is up about 3% against each of the 16 major world currencies this year. Predictions that the debt crisis in Europe will continue and that the recovery of the U.S. economy will be sluggish have increased demand for the safety of the yen.

Tokyo-based analyst for HIS Automotive, Masatoshi Nishimoto, said, “All Japanese carmakers are grappling with this problem and exploring production shifts out of Japan. Small compact cars have lower profit margins, so they are more susceptible.”

Sales of Toyota, Lexus and Scion imports to the U.S. are down 15% from this time last year. The total sold, 325,398 units, is four times the amount of imports sold by Honda Motor Company, which is the highest seller of North American built vehicles in the U.S. market. Nissan Motor Company’s sales of imports were up 19% over last July at 159,904, which is the second highest volume compared to Toyota.

Niimi says that the priority right now for Toyota is to make up for the exchange-rate fluctuations by improving productivity at its plants in Japan. He said, “By way of technical innovation, we’d like to realize a high level of productivity, as well as a low amount of investment, so we can maintain a system where we can export some vehicles overseas.”

Toyota spokesperson Jim Wiseman explained that even though Toyota makes Corollas in Canada, more of the cars are being exported to the U.S. from Japan since its California joint-venture with GM closed in April. This will continue until September 2011, when the company will open a new facility in Blue Springs, Mississippi.

The Toyota Corolla has a base price of $15,450. The automaker is looking into whether or not the Yaris subcompact, which has a starting price of $12,605, can be profitable if built and sold in the U.S. Niimi said, “That’s the problem we have to solve.”

The problem is affecting Nissan and Honda as well. Yoichi Hojo, CFO for Honda said that if the yen remains at or below 85 to the dollar, Japan won’t be able to earn enough on the exports to pay for overseas commodities.

Kiyoshi Ishigane, strategist at Mitsubishi UFJ Asset Management Company, based in Tokyo, predicts the yen could reach 80 or 75 to the dollar if the current trend continues.

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