Ford CFO Says Toyota Gains $10 Billion Advantage on Weak Yen

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(Bloomberg) -- Ford Motor Co.’s top financial executive said the weak yen gives Japanese automakers as much as $11,000 more profit per car and allowed Toyota Motor Corp. to earn an extra $10 billion in 2013. Ford wants the U.S. to intervene against what it sees as currency manipulation.

[ by Keith Naughton | January 29, 2015 | Bloomberg Business ]

“The concern we have is what do you do with all that money,” Bob Shanks, Ford’s chief financial officer, said Thursday in an interview. “The competitive landscape really shifts when you’ve got a competitor that suddenly has got that kind of windfall simply because the currency has moved.”

Ford is encouraging U.S. trade officials to include rules to prevent currency manipulation in the Trans-Pacific Partnership treaty under negotiation between North American and Asia-Pacific countries, including Japan. Ford contends the weak yen allows Japanese automakers to cut prices or add features to their cars without hurting profits. In the past three years, the yen has weakened 35 percent against the U.S. dollar, according to data compiled by Bloomberg.

“There are internationally recognized and agreed principles that could be used and put in these agreements so that when there is outright currency manipulation, there would be consequences,” Shanks said. “Sometimes currencies move just because the market moves and they should move. But sometimes they move because governments intervene inappropriately.”

Ford calculates that the weakening yen added $6,000 in profits to an average car imported from Japan from 2012 to 2013, Shanks said. With today’s yen trading at about 118 to the dollar, that additional profit has increased to about $11,000 from 2012, he said.

Profit Doubles

Shanks said his analysis of Toyota’s balance sheet shows its automotive earnings before interest and taxes doubled to $24 billion in 2013.

“Of that improvement of $12 billion -- and this is what they said -- $10 billion of it was the yen,” Shanks said. “If you go back and look at Toyota’s profitability over the last year or two, a huge portion of that is due to the weak yen.”

Toyota reported a 900 billion yen gain ($7.5 billion) from currency swings in its fiscal year that ended in March 2014.

Toyota, the world’s largest automaker, disputed that the weak yen gives it a competitive advantage.

“It’s like gas prices, sometimes they go up, sometimes they go down,” Julie Hamp, Toyota’s chief communications officer in North America, said in an interview. “Sometimes the yen is strong, sometimes it’s weak, just like the U.S. dollar, and we don’t control it. The important point is that more than 70 percent of what we sell in the U.S. is built in North America, and we don’t run our business based on the yen.”

Russian Market

Shanks said the weak yen gives Toyota a competitive advantage around the world because it doesn’t have to raise prices as much in regions, such as Russia, where a collapse in the local currency has curtailed buying power. Shanks made his comments after Ford posted a 2014 pretax profit of $6.3 billion.

“It’s changed the competitive dynamic in Russia, it clearly gives them more ammunition in North America, and it’s given them a lot more power in countries like Australia and Thailand,” Shanks said. “It’s really this competitive aspect that we’re concerned about and talk about a lot, and we’re watching very closely.”

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