Toyota-Panasonic Yen Handicap Fading Versus Hyundai-Samsung

Halloween of 2011 was so disturbing for Toyota Motor Corp. President Akio Toyoda that he warned Japanese carmakers might collapse. The yen hit a postwar high, crippling their ability to recover from natural disasters and compete against Hyundai Motor Co.

Since then, Japan’s currency has weakened 14 percent against the dollar -- the second-largest decline among major currencies tracked by Bloomberg -- while South Korea’s won posted among the largest gains, at more than 4 percent. That’s boosting the competitiveness of Japanese exporters from Toyota to Panasonic Corp. against Korean rivals, including Hyundai and Samsung Electronics Co., when shipping cars, smartphones and televisions overseas.

“We’re beginning to see the light,” Toyoda, 56, told reporters in Tokyo this week. The yen, which traded at 87.68 against the dollar as of 5:49 p.m. in Tokyo, still needs to weaken further to be at an “appropriate” level of 90 to 100 against the U.S. currency, Toyoda said.

Net income at the Toyota City-based carmaker, Asia’s largest, fell 31 percent to 283.6 billion yen ($3.2 billion) in the year ended March 31 as the yen’s appreciation -- climbing to as high as 75.35 against the dollar on Oct. 31, 2011 -- eroded earnings while the 2011 earthquake and tsunami in Japan and floods in Thailand disrupted output.

Panasonic, Sharp

Electronics makers Panasonic and Sharp Corp. posted record full-year losses as the surging currency accelerated their drop in market share versus Samsung and LG Electronics Inc. Though Sony Corp. also had record losses that year, the company blamed the deficit mainly to writedowns as the company hedged the risks from currency fluctuations.

“The situation for exporters is getting better with the yen’s recent weakness as a tailwind,” said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc.

Japanese automakers are competitive and will be able to “fully enjoy” the advantages of the currency movement, Shimizu said. In contrast, the nation’s electronics makers still need more attractive products to pose a threat to Samsung’s dominance, he said.

The yen has tumbled 6.7 percent over the past month, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It fell versus all major counterparts today on expectations the Bank of Japan will accede to government pressure to expand monetary easing that tends to weaken the currency.

Inflation Goal

Newly elected Prime Minister Shinzo Abe has called for a doubling of the BOJ’s 1 percent inflation goal to reverse more than a decade of deflation. Finance Minister Taro Aso said yesterday Japan plans to use its foreign-exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken the yen.

Japan’s benchmark Nikkei 225 Stock Average has jumped 21 percent in the past three months while South Korea’s Kospi index has climbed 0.7 percent.

Japanese exporters are calling on Abe to act as the yen is still stronger than its 10-year average of 101 against the dollar. Fumio Ohtsubo, chairman of Osaka-based Panasonic, said this week he would like the yen to weaken to at least 90. Carlos Ghosn, chief executive officer of Yokohama-based Nissan Motor Co., said last month that about 100 would be “neutral territory.”

U.S. Market Share

“Our competitive environment has eased somewhat compared to when we struggled from the yen’s rapid gain,” Ohtsubo said. “The situation is helping Panasonic as we review our business portfolio to promote reform and become a stronger company.”

The company and fellow Japanese TV makers such as Sony and Sharp have steadily lost sales to Samsung, now the world’s largest maker of televisions, which boosted its global market share to 29 percent in 2012 from 10 percent in 2004.

South Korean carmakers raised their combined market share in the U.S. to 8.7 percent last year from 4.8 percent in 2007, according to data compiled by Bloomberg. Japanese brands were little changed at about 37 percent during the period, while Ford Motor Co., General Motors Co. and Chrysler Group LLC accounted for a combined 44.6 percent, down from 51 percent.

“Our competitive edge against Hyundai is much better than a year ago,” Mitsuhisa Kato, executive vice president at Toyota, said Jan. 7.

Every one-yen drop against the dollar will boost Toyota’s annual operating profit by 35 billion yen, according to the carmaker.

Hyundai, Kia

Hyundai Motor Group, which includes the listed Hyundai Motor and smaller affiliate Kia Motors Corp., expect the won to continue strengthening this year, boosting the competitiveness of vehicles exported from Japan, Kia said in an e-mail.

Overseas sales account for 75 percent to 80 percent of the Korean group’s sales, and a 10-won change in the Korean currency’s value against the dollar would affect Hyundai’s profit by 120 billion won ($113 million) and Kia’s by 80 billion won, according to the statement.

The companies will reduce payments in dollars and expand the use of other currencies including the euro, Kia said. They are also expanding overseas production and will increase sales of larger, more profitable vehicles, it said.

“Both Hyundai and Kia will strengthen quality and enhance brand value to respond to the weak yen,” Kia said.

At Samsung, business is spread out globally and the use of local currencies is “relatively high,” helping the company hedge against currency risks, the Suwon, South Korea-based electronics maker said in an e-mail.

‘Limited’ Impact

Samsung “will focus on our primary competitiveness to keep our structure healthy and strong against any external variations,” it said.

The impact from short-term foreign-exchange movements on LG Electronics’ earnings is “limited,” the Seoul-based company said in an e-mail. Its flat-panel making unit, LG Display Co., said its business plan is based on assumptions the won will trade at 1,050 won to 1,070 won against the dollar this year.

LG Electronics, the world’s second-largest TV maker, earned 22 percent of its revenue in North America in the three months ended Sept. 30, according to data compiled by Bloomberg.

While Japanese companies haven’t predicted an immediate impact on earnings, Nissan Chief Operating Officer Toshiyuki Shiga said Jan. 7 that a rate of 100 yen to the dollar may encourage the company to consider building new factories and making more products in Japan. Nissan, Toyota and Tokyo-based Honda Motor Co. have been shifting production abroad to shield themselves from currency swings.

‘Our Turn’

At the time, the weaker won allowed Korean carmakers including Seoul-based Hyundai to boost U.S. marketing and promote cheaper alternatives to Japanese brands.

With the currency trend reversed, “it’s our turn to brush up the design and quality of our cars,” Toyota’s Kato said.

“We’ve got some relief, and that feels good,” Mark Templin, U.S. head of Toyota’s Lexus luxury-car brand, said in an interview this week in Las Vegas.

While the company hasn’t changed pricing as a result of the weaker yen, easing pressure on prices and profit margins will give Lexus increased flexibility, Templin said.

“It may give us more resources to do things that we haven’t been able to do,” he said. “We can invest in new products, we can invest in new things for our customers. That’s hard to do when the exchange rate makes it difficult to make any money.”

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