Why Ford Thinks Toyota Isn't Playing Fair

Ford's popular Fusion sedan gained ground on Toyota's Camry last year. Ford is worried that Toyota could use its currency advantage to make big price cuts. Photo credit: Ford.

It's no secret that Japan's moves to devalue its currency have led to huge profits for Toyota (NYSE: TM  ) . 

Japan's auto giant reported a huge $5.1 billion profit last quarter, and said that the yen's decline was a big reason for its success.

It's also no secret that some of Toyota's biggest competitors think that this is unfair. And one of those competitors, Ford (NYSE: F  ) , hasn't been shy about saying it.

Ford is really unhappy with Japan's government -- and Toyota, too
Joe Hinrichs is Ford's president of the Americas. He's the chief, in other words, of the automaker's North America and South America regions. He's a big deal, a well-regarded senior executive. 

So it's significant when Hinrichs steps up and calls out Toyota and the Japanese government, as he did last week. 

"When Toyota came out and said half their profits are due to currency change of the yen, that's a big deal. They said that," Hinrichs said after a speech in Chicago, according to Automotive News. "When [Toyota CEO] Akio [Toyoda] came out in support of [Japanese Prime Minister Shinzo] Abe saying we need a weaker currency, that's a corporate policy statement."

Hinrichs reiterated Ford's opposition to a trade agreement called the Trans-Pacific Partnership, which is being debated in Congress, if the deal doesn't limit a country's ability to manipulate its currency.

This isn't the first time Hinrichs has taken a swing at Japan's monetary policy. Last year, he expressed concern that the weakened yen would allow Japanese automakers to crank up exports to the U.S. -- just as Ford and other U.S. automakers were struggling to expand their production capacity. 

Hinrichs' remarks last year followed Ford CEO Alan Mulally's comments in June 2013 that the Japanese government was manipulating its currency to give automakers like Toyota an advantage.

So what's really going on here? Does Ford have a legitimate beef, or is Hinrichs just expressing frustration after being outflanked by a competitor?

Why a cheaper yen means fat profits for Toyota
Well, it's true that the Japanese government has made multiple moves to devalue the yen, in hopes of jump-starting its domestic economy. And it's also true -- as Toyota freely admits -- that Japan's largest automaker is making a ton of money right now as a result.

What has happened is that the yen has fallen in value against nearly every other major currency over the last couple of years, including both the U.S. dollar and the euro. Two years ago, $1 was worth about 76 yen. Now, it's worth about 102 yen.

For Toyota, $1 earned in the U.S. is now worth a lot more yen at home. Ford's complaint is that the Japanese government unfairly manipulated things to make that happen.

But it's not Toyota's profits that Ford is worried about.

Ford's real fear: A U.S. price war
So far, at least in the U.S., Toyota and the other Japanese automakers have mostly chosen to hold prices steady and take the extra profits. 

(I say "mostly" because Nissan (NASDAQOTH: NSANY  ) did cut prices on some models last spring, including the Altima sedan (its biggest seller in the U.S.), and saw sales jump -- but its profits have suffered.)

Ford's concern is that Toyota could use its currency advantage to make big price cuts that the Blue Oval couldn't match. Already, Ford's average transaction prices on key models like the Fusion are higher than seen at Toyota. Ford's emphasis on design and features has made that work out, and its profit margin in North America have been strong.

The Fusion is a great car. But if the Camry were to suddenly get a whole lot cheaper, Ford's sales could struggle -- unless the company cut its own prices (and hard-won profit margin) in response.

Ford really, really doesn't want to do that. 

That's why Hinrichs is trying to push Congress to make Japan knock it off. 

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Read/Post Comments (17) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2014, at 3:15 PM, Jason87467 wrote:

    Japan has a history of trading unfairly. That's their way of life. We in the USA rarely do anything about it so their attitude is, why not?

    The Japanese culture is all rigged up to make it difficult for us to trade successfully so we usually don't fight it. Below is a link that brings out how Japan gets there way with trade. A long read but interesting.

    http://www.uwsa.com/issues/trade/japanyes.html

  • Report this Comment On February 16, 2014, at 4:00 PM, CrazyDocAl wrote:

    Ford goofed. They realize that their new F150 made from Aluminum is either going to force them to raise the price by about $6k per truck or take a big hit on what has been about a $10k profit per truck. This leaves GM, Dodge, and Toyota a large window to start a discount race.

    GM has already signaled they will cut the price of the new 1500 series. I'm sure GM is still making a profit but Ford probably realized that they can't discount their new aluminum F150 that much. If Toyota decides to slash the Camry and Corolla that will be a second attack that Ford may not be able to handle.

    The 1 to 2 mpg increase the aluminum will give the F150 is not going to be enough to offset a higher cost of the aluminum. Ford needs prices (profit) to stay where they are. Ford needs that wiggle room. It looks like Japan has just taken that wiggle room away.

  • Report this Comment On February 16, 2014, at 4:08 PM, PhilLC1 wrote:

    sorry, but what about the very, very weak US dollar? And since when does the US 'pay fair'? The US like any other country looks for their own advantage and the US being the ten ton gorilla that it is, wins such spats often enough...so take the log out of your won eyes before you look at the twigs in others'...

  • Report this Comment On February 16, 2014, at 7:47 PM, Csskeller wrote:

    Sounds like "sour grapes" and whining to me. Even though Ford didn't officially declare bankruptcy they got financial help from the government. I'm no "Ben Bernanke" but doesn't all this quantitative easing affect the value of U.S. currency? Isn't that a form of currency manipulation.

    Focus on attempting to make good cars instead of being near the bottom of the reliability list. Make a good product and buyers will follow. Ford has lots of work to do.

  • Report this Comment On February 16, 2014, at 9:10 PM, Gdell wrote:

    How did Ford take bailout money? They took a department of Energy loan that was available to a whole host of companies. That's not a bailout. Did borrowed money to survive the financial downturn from banks by using all of their assets as collateral. That's not the same as GM and Chrysler which would have sunk without the bailout.

  • Report this Comment On February 16, 2014, at 11:40 PM, shawnm64 wrote:

    When u buy tons of aluminum in bulk and have a 3D printer to make your parts 4 u,you r actually saving millions over another company making them from steel,and this is just the beginning of kicking China to the curb along with other countries that we will not need to make our parts in the very near future !

  • Report this Comment On February 17, 2014, at 1:32 AM, CrazyDocAl wrote:

    Buying aluminum in bulk is not going to save you money over buying steel in bulk. Both types of panels are going to be made the same way, stamped by a press. In fact Ford had issues (I think they resolved them) with the accuracy of the aluminum panels after they were stamped.

    When any type of metal is bent (or pressed) it has a tendency to return to it's original shape. To compensate for this the panel is "over" bent so with it relaxes it becomes the correct shape. This requires the steel or alloy to be of a very exact standards. The Aluminum alloy Ford was getting varied too much and the amount it would straighten back out varied too much. What that means is Alcoa needs to refine their alloy making process to a tighter standard. That's going to cost someone money.

  • Report this Comment On February 17, 2014, at 7:06 AM, dusty10x wrote:

    Japan has always had the government provide extra monetary support for their auto industry to help them with exporting cars......Nothing has changed.......

  • Report this Comment On February 17, 2014, at 7:33 AM, Cody700 wrote:

    For those concerned that the price of a new F150 will go up $6K is completely unfounded and untrue. Ford OWNS the truck market, and you can bet your bottom dollar that they will hold on to that, as well as remain the most profitable. As for the Japanese companies using the currency to their advantage, that is going to happen when you have a government that doesn't know how to create a business friendly environment. It isn't protectionism to create a level playing field for our importers. It is just fair. Impose a tarif and level the field since the currency manipulation is out of the hands of capitalism to correct. Further proof that any time you tinker with capitalism you kill the fairness of it.

  • Report this Comment On February 17, 2014, at 1:22 PM, Csskeller wrote:

    Ford's bailout by the government was just packaged differently. They got 5 + billion in low interest rate loans from Obama. Taxpayer money used to establish that pile of cash. Call it what you want but it was still government help.

    They had 33 billion in debt. Sounds like they were bankrupt to me.

    Ford has taken help, too. Now they whine when Toyota benefits from monetary policy. Again, isn't quantitative easying a manipulation as well???

  • Report this Comment On February 17, 2014, at 1:36 PM, bpainter wrote:

    Ford took taxpayer money what a bunch hypocrites.

  • Report this Comment On February 17, 2014, at 2:55 PM, Jeffkory wrote:

    Any government money is from the taxpayers- Ford- GM- and Chrysler all got government money from us taxpayers- That's the bottom line- THEY ALL TOOK TAXPAYER MONEY- PERIOD. Although toy builds a quality vehicle- I knew they would be the downfall of the auto industry in America with their glut of jap crap- I will walk before toy gets 1 penny from me-- I don't like their BLAND overproduced camry or their TiRD trucks

  • Report this Comment On February 17, 2014, at 2:59 PM, NoVaEarly wrote:

    Ford did not take taxpayer money. Accepting a loan and then paying it back, plus interest is not taking anything. If you have a mortgage on your house are you taking that money from Wells Fargo? Of course not. On the other hand, GM accepted millions in help and the stock the govt got in exchange was bought back for less than the govt paid for it and original GM shareholders were screwed completely. Taxpayers recouped $39 billion of the $50.1 billion given to GM meaning GM paid back $78 for every $100 borrowed. Ford paid back all of the principal borrowed plus $577 million in interest meaning Ford paid back $110 for every $100 borrowed. Those are very different circumstances.

  • Report this Comment On February 17, 2014, at 3:59 PM, miru wrote:

    Does the US really need foreign countries?

  • Report this Comment On February 17, 2014, at 4:53 PM, Csskeller wrote:

    I'm just saying that Ford needs to look in the mirror. The US is buying billions of dollars in treasuries every month. This lowers interest rates and devalues the dollar.

    If we want to be part of the global economy we have to accept that we can't have everything our way. China, Japan and the United States manipulate currency.

    Ford needs to make products people want to buy. Then they won't have to worry about the hypocrisy of the currency manipulation issue.

  • Report this Comment On February 18, 2014, at 4:05 AM, piyopiyo wrote:

    Besides the weaker yen, the Japanese government has given another monetary support to the Japanese automaker through a Japanese chipmaker which provides various semiconductor products for the auto industry. Last year the chipmaker took bailout money from the Japanese government. At first the Japanese company had planned to accept a capital infusion from a US private equity firm for its survival. But the Japanese automaker was afraid that the chipmaker might be controlled by the US firm and begged help from the Japanese government. Please refer to the media reports in 2012. Congress should investigate this issue.

  • Report this Comment On February 18, 2014, at 12:41 PM, zythr wrote:

    Ford should look to its past to see why Toyota became so popular in the US.

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