An Automotive News article today (http://bit.ly/nkSV8A) highlights Honda’s new strategy to cut exports from Japan by 50% in the next 10 years, making the policy clear for the all of the J3 OEM’s. Honda’s move is no surprise and would merely bring its production into what it calls optimal localization of 80-90%. The plan is in-line with Nissan’s announcement
Currency impact: with the yen well stronger than anyone expected 24 months ago, it makes sense to redistribute particularly in dollar and euro denominated sales. Honda has a 18-20 billion yen sensitivity to a one yen change against the dollar alone. Nissan is about 20 billion yen and Toyota claims around 40 billion yen. At a 20 yen appreciation since mid-2009, that represents an annual bloodbath of 400 billion yen for Honda alone and 1.6 trillion for the J3.
It’s important to realize that this is split between transactional and translational. 10 years ago, the transaction was what mattered most as all three automakers were pouring local cash back into big capex and working capital requirements. Today with not so many new plants being built, both are important as cash needs to be repatriated to Japan for rebuilding post Tsunami and for expansion in BRIC markets.
My take: With the dollar and euro in a race to the bottom, it’s hard to get excited about a weakening yen story, but when you look at the charts, and consider the magnitude of impact, I suggest you keep one eye on the yen and another on 7201, 7203, 7267. Toyota has the biggest exposure, but I believe that is already priced in by the market.