Toyota, Honda May Boost Overseas Production on Stronger Yen

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By Kae Inoue, Makiko Kitamura and Kiyori Ueno

Oct. 22 (Bloomberg) -- Toyota Motor Corp. and Honda Motor Co., Japan’s two biggest automakers, may increase overseas output as a stronger yen makes exports less competitive.

“We must think about producing overseas what is now being produced in Japan,’” Toyota’s Executive Vice President Takeshi Uchiyamada said at the Tokyo Motor Show yesterday. The yen may “have a big impact on Japanese production,” Honda’s President Takanobu Ito said.

Japanese carmakers have lost U.S. market share to Korea’s Hyundai Motor Co. after the yen strengthened to a 14-year high in January. The carmakers have capacity available in North America after slashing production amid tumbling U.S. auto sales.

“The strong yen is a major challenge,” said Ashvin Chotai, managing director of Intelligence Automotive Asia. “The yen at 90 per dollar is considered the tipping point where Japanese automakers rapidly relocate production overseas.”

The yen reached 88.01 against the dollar on Oct. 7, nearly matching January’s high. It traded at 90.83 as of 7:32 p.m. yesterday in Tokyo.

Nissan Motor Co., Japan’s No. 3 automaker, will fully use its capacity in the U.S. and Mexico in the “very short term,” Chief Executive Officer Carlos Ghosn said. “The U.S. dollar has become very competitive,” he added.

Prius Production

Nissan’s U.S. utilization rate has come down to “60 to 70 percent,” said Carlos Tavares, the company’s executive vice president in charge of the North America region.

Toyota shifted production of its RAV4 sport-utility vehicle to Canada last year and started building the Highlander SUV this month in Indiana. The company is also planning to make the Prius gasoline-electric hybrid at a new plant in Blue Springs, Mississippi.

“Toyota, Honda and Nissan need to be doing everything to slash costs,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Chiba-gin Asset Management Co.

Based on first-quarter results, every 1 yen gain against the dollar reduces Toyota’s operating profit by about 30 billion yen ($330 million), while Honda estimates every 1 yen gain cuts operating profit by 12 billion yen.

“If we can expect the yen to be strong for a long period of time, we may have to see if we need to shift what we are exporting from Japan to local production,” Honda’s Ito said. The automaker said this week it may start building its Fit compact car in the U.S.

Japan Sales Fall

Honda was unchanged at 2,780 yen as of the 3 p.m. close yesterday on the Tokyo Stock Exchange, while Nissan dropped 1 percent. Toyota climbed 0.8 percent.

Industrywide vehicle production in Japan is likely to fall 29 percent to 8.2 million units in 2009 from the previous year, the lowest level since 1976, according to Intelligence Automotive Asia.

Toyota has production capacity of 1.895 million in North America, while Honda has 1.52 million and Nissan 1.45 million. Toyota and Honda have declined to say what their current utilization rates are.

Honda and Nissan both said North America will remain their most important market and that rebuilding profit in the region is their top priority.

U.S. vehicle sales may drop 23.5 percent to 10.1 million this year, according to auto consulting company CSM Worldwide. Sales in China may reach 12 million, according to a government forecast, surpassing the U.S. for the first time.

“China is becoming very important to us,” Nissan’s Ghosn said. “At the same time, let’s not forget the U.S. market, where there were 17 million cars two years ago.”

To contact the reporter on this story: Kae Inoue in Tokyo at kinoue@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Kiyori Ueno in Tokyo at kueno2@bloomberg.net
Last Updated: October 21, 2009 11:00 EDT