Japanese Automakers: In the Driver’s Seat
Several weeks ago, I wrote about new Japanese Prime Minister Shinzo Abe’s campaign of psychological warfare on the value of the yen (Changing of the Guard, Dec. 20, 2012). Abe had been talking of clipping the Bank of Japan’s (BoJ) wings and curtailing some of its independence and mandating that the BoJ introduce significant inflation into the economy by doubling its target rate.
Since then, Abe has continued his battle against yen appreciation and deflation in the Japanese economy, announcing a JPY10.3 trillion (USD116 billion) stimulus program last week and continuing to pressure the BoJ on the issue of inflation targets. Those measures have helped push the yen down by more than 11 percent since mid-November, as you can see in the chart below.
In fact, Abe’s “talk-‘em-down” campaign has proven such as wild success, other high-ranking Japanese officials have been speaking publicly of the danger of the rapid depreciation of the yen in what amounts to a good cop/bad cop routine on a global stage.
With public debt already twice the size of the Japanese economy, some in the government are beginning to worry about too much inflation or a spike in bond yields. The program of yen depreciation is also a double-edged sword for the Japanese. On the one hand it’s great for exports, but it drastically increases the cost of imports, something Japan is highly reliant on as an island nation.
While Abe might be playing with fire as he tries to pull the Japanese economy out of recession at all costs, he has setup a kamikaze attack on US automakers in their home market.
US automakers had a banner year in 2012 when US sales hit 14.5 million units, the highest rate since 2007 as the global economy and consumer confidence continued to improve. Despite that huge sales spike last year, the average age of the US auto fleet remains at its highest level in decades. The automotive replacement cycle should continue into 2013 and if confidence remains high the pace of sales will likely continue to pick up.
So far, the auto sales sweet spot has proven to be the midsize sedan with compact models a close second. While consumers are feeling more confident, they aren’t quite ready to make the leap into high price point luxury cars or gas guzzling sport utility vehicles.
Unfortunately for Ford (NYSE: F) and General Motors (NYSE: GM), midsize sedans are where the Japanese excel with models such as the Toyota (NYSE: TM) Camry—the bestseller here in the US—and the Nissan (OTC: NSANY) Altima. Toyota has surpassed GM to become the largest car seller in the world.
The days when automakers competed on attractive body styles and innovative new features are long past. Granted, I’m not much of a car enthusiast myself but I have a tough time telling the difference between similar model cars manufactured after the early 1980s, with most competition these days occurring on price and efficiency.
Given the fact that Japan is an island nation and the largest net importer of oil, they know how to build cars which offer excellent fuel efficiency, with most of their midsized cars getting around 35 miles per gallon on the highway. With some exceptions, most US-made models offer mileage in the low 30s.
I’m certainly not sounding the death knell for US automobile makers. Moreover, the broader Japanese economy might still be in trouble thanks to slow growth and high debt. However, now that tsunami-related bottlenecks have been cleared up and supply channels are running smoothly, Japanese automakers are a better bet than those in the US, largely thanks to Abe’s attack on the yen.
Since then, Abe has continued his battle against yen appreciation and deflation in the Japanese economy, announcing a JPY10.3 trillion (USD116 billion) stimulus program last week and continuing to pressure the BoJ on the issue of inflation targets. Those measures have helped push the yen down by more than 11 percent since mid-November, as you can see in the chart below.
In fact, Abe’s “talk-‘em-down” campaign has proven such as wild success, other high-ranking Japanese officials have been speaking publicly of the danger of the rapid depreciation of the yen in what amounts to a good cop/bad cop routine on a global stage.
With public debt already twice the size of the Japanese economy, some in the government are beginning to worry about too much inflation or a spike in bond yields. The program of yen depreciation is also a double-edged sword for the Japanese. On the one hand it’s great for exports, but it drastically increases the cost of imports, something Japan is highly reliant on as an island nation.
While Abe might be playing with fire as he tries to pull the Japanese economy out of recession at all costs, he has setup a kamikaze attack on US automakers in their home market.
US automakers had a banner year in 2012 when US sales hit 14.5 million units, the highest rate since 2007 as the global economy and consumer confidence continued to improve. Despite that huge sales spike last year, the average age of the US auto fleet remains at its highest level in decades. The automotive replacement cycle should continue into 2013 and if confidence remains high the pace of sales will likely continue to pick up.
So far, the auto sales sweet spot has proven to be the midsize sedan with compact models a close second. While consumers are feeling more confident, they aren’t quite ready to make the leap into high price point luxury cars or gas guzzling sport utility vehicles.
Unfortunately for Ford (NYSE: F) and General Motors (NYSE: GM), midsize sedans are where the Japanese excel with models such as the Toyota (NYSE: TM) Camry—the bestseller here in the US—and the Nissan (OTC: NSANY) Altima. Toyota has surpassed GM to become the largest car seller in the world.
The days when automakers competed on attractive body styles and innovative new features are long past. Granted, I’m not much of a car enthusiast myself but I have a tough time telling the difference between similar model cars manufactured after the early 1980s, with most competition these days occurring on price and efficiency.
Given the fact that Japan is an island nation and the largest net importer of oil, they know how to build cars which offer excellent fuel efficiency, with most of their midsized cars getting around 35 miles per gallon on the highway. With some exceptions, most US-made models offer mileage in the low 30s.
I’m certainly not sounding the death knell for US automobile makers. Moreover, the broader Japanese economy might still be in trouble thanks to slow growth and high debt. However, now that tsunami-related bottlenecks have been cleared up and supply channels are running smoothly, Japanese automakers are a better bet than those in the US, largely thanks to Abe’s attack on the yen.