Nissan’s Ghosn Warns of Japan ‘Hollowing Out’ on Yen’s Surge

Carlos Ghosn, chief executive officer of Nissan Motor Co., said Japan faces a “hollowing out” of its industrial base should the government fail to take steps to counter the yen’s rise.

“I have spoken to the prime minister about this directly,” Ghosn said in an interview from Rio de Janeiro yesterday after Yokohama, Japan-based Nissan announced a new $1.4 billion auto plant in Brazil. “If Japan wants employment, you’re going to have to do something about establishing a normal exchange rate.”

Nissan, Toyota Motor Corp. (7203) and Honda Motor Co., Japan’s three largest automakers, are shifting production overseas as the yen’s surge erodes the profitability of building cars in their home market. The nation’s currency has risen 5.7 percent this year against the dollar and touched a postwar high of 75.95. The government, led by the Democratic Party of Japan, last moved to weaken the yen in August.

A lack of government action “is showing that employment is not their number one priority,” Ghosn said. “At 76 yen to the dollar, if this rate was to stay for a while, I think you’re going to see a hollowing out of the industry.”

The yen traded at 76.79 per dollar at 12:57 p.m. New York time.

‘Empty Shell’

“Short term, you have the margin pressures from the yen that are affecting all the Japanese automakers,” said Efraim Levy, a New York-based equity analyst for S&P Capital IQ, who follows Nissan and rates its American depositary receipts a “buy.”

“At these levels, I don’t see any choice but to move significant manufacturing operations out of Japan,” he said.

The Liberal Democratic Party, Japan’s main opposition party, proposed increasing the Bank of Japan’s asset fund and diversifying the methods of yen intervention to help the country recover from its March 11 earthquake and the nuclear disaster at Tokyo Electric Power Co.’s plant in Fukushima.

The LDP called for increasing the central bank’s asset- buying fund by 10 trillion yen ($130 billion) to 25 trillion yen, according to a document obtained from LDP lawmaker Naokazu Takemoto.

“The DPJ government has left the accelerating yen’s rise to its own course,” the LDP document said. “The Japanese economy runs the risk of becoming like an empty shell.”

Nissan’s new 200,000-unit assembly plant in Brazil is scheduled to open in 2014. The company has also boosted investment in factories in Mexico and Thailand for small cars that it says can no longer be built profitably in Japan.

Toyota Parts

Toyota, Asia’s biggest carmaker, is telling parts suppliers in Japan to slash prices or face being replaced by overseas rivals as the yen appreciates, four people involved with the discussions said.

Toyota, which loses 34 billion yen ($443 million) in operating profit for every 1 yen appreciation against the dollar, told parts-makers it will buy more from emerging markets if domestic suppliers can’t match overseas prices, according to the people, who declined to be identified because the talks are private.

Toyota said last month it will spend 26.3 billion yen to build a second factory in Indonesia. The Toyota City-based company is setting up a production hub complete with a network of suppliers in the Southeast Asian country as it aims to get half its sales from emerging markets by 2015.

Honda Exports

Honda, based in Tokyo, said Oct. 5 it will reduce exports to as little as 10 percent of domestic production, from 34 percent last year.

“Business people, when they make a decision about where to source a new project or where to source new parts or where to source a new car, well, at 76 yen to the dollar it’s very easy to come to the conclusion that Japan is not a good place to source that,” Ghosn said.

“I don’t think Japanese corporations are going to suffer from it, they are just going to adapt to it,” he said. “Adapting to it means projects are going to be made outside Japan.”

Nissan rose 2.2 percent to 701 yen earlier at the close in Tokyo. The shares have fallen 9.3 percent this year.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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