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U.S. Automakers Don’t Expect Quick Gain From Stronger Yen Dollar’s Recent Slide Unlikely To Generate Flurry Of New Sales

Sun., May 25, 1997

U.S. automakers have been complaining for months that the relative strength of the dollar against the Japanese yen has allowed Japan-based automakers to wrest away market share.

Now the yen is strengthening. Just don’t expect to see Ford Motor Co., Chrysler Corp. and General Motors Corp. celebrating anytime soon.

“This is a blip on the radar screen,” said Stephen Collins, Director of Economics and International Affairs t the American Automobile Manufacturers Association, which represents the U.S.-based automakers. “It in no way conclusively indicates a permanent shift in the pattern of the last year and a half.”

Since setting a 4-1/2-year high of 127.50 against the yen May 1, the dollar has dropped 10 percent, trading Thursday at 115.96 yen. Yet the dollar remains much stronger than in April 1995, when it was at 79.75 yen. A weak yen makes Japanese products less expensive in the U.S. and generates more yen for each dollar sale to Japanese carmakers.

Even if the yen continues the strengthening seen in the last two weeks, it could take months for U.S. automakers to regain the market share they’ve lost in recent years, analysts and industry executives said. The weak yen helped Japanese automakers increase their share of the U.S. market by 2 percentage points to 25 percent this year, U.S. automakers say, while GM, Ford and Chrysler saw their share drop to 72 percent from 74 percent.

Also, the time lag between currency fluctuations and their reflection in the market could mean the Japanese continue to win market share into 1998.

“The yen would have to stay at the current level for six months or more before the relative competitiveness of U.S. and Japanese automakers would start to change,” said David Garrity, an analyst at Smith Barney.

Some of the Japanese automakers’ advantage could end if the dollar falls to between 100 and 110 and stays there, said Mustafa Mohatarem, chief economist at General Motors.

As the stronger yen erodes profit on vehicles built in Japan and sold in the U.S., Japanese makers such as Toyota Motor Corp. and Honda Motor Co. may decide to build more cars in the U.S.

“You’ll probably see Toyota and Honda up the capacity for their North American plants, but that won’t be easy,” said Robert Shaw, an auto industry consultant with the Wefa Group in New York. Both companies’ U.S. plants are already operating at full capacity, he said.

Honda may also be forced to increase the price of its CR-V small sport utility vehicle, which is made in Japan and is popular in the U.S., Shaw said. Toyota may have to raise the price on its RAV-4 small sport utility, also made in Japan. U.S. automakers will probably not reduce their prices to draw more buyers. Robert Eaton, the chairman of Chrysler, said any benefit from the strengthening yen will become apparent “rather slowly.” Japanese manufacturers dispute the extent of the currency advantage the yen has given them in boosting recent sales.

“The exchange rate did not result in reduced Camry prices,” said Alex Warren, senior vice president of operations for Toyota Motor Manufacturing, Kentucky Inc., Toyota’s main U.S. manufacturing facility. “Our continuous efforts to reduce costs and improve value is what produced those results.”

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