I’ve written in the past about the biggest impact on J3 earnings, not natural disasters or imagined acceleration…the yen. With the yen trending stronger against the dollar over the past week, I took a look at estimates for FY2013 to double. With Toyota and Honda using 80 yen/dollar and Nissan 82 yen/dollar, I’ve talked with some folks who are concerned that we may see some disappointment in the coming quarters if the yen hangs around these 78 levels. I’m not so worried. Let’s look at three points.
1) The US market is just hitting strides and the J3 went into the year somewhat conservative. Don’t mistake the market share rhetoric you hear from the CEO’s and sales heads with the budget forecasts. Of the three Nissan is most aggressive and as I’ve said before, the most feared by competitors to start an incentive war. More likely we’ll see intense product competition particularly on the sedan segment.
2) China, don’t buy all the concerns over slowdown in China. The fact is that while the market was flying at >60%+, the core J3 products were growing steadily at 20-30% as supply was strained. Well, as the market has slowed to single digit growth, these same products continue to plug along at 20% growth at volumes that are rivaling North America and margins that at times eclipse even the US.
3) For the year, we may see the yen linger in the high 70’s to the dollar, however, along with product and operational upside, it’s more likely the yen will fall back to the low 80’s than move to the low 70’s, especially as we move towards the U.S. elections.
Overall, the J3 have gotten over the hump. As always, I want to look at the incentive spending on May promotions, especially the legendary May Nissan Tent sales. If numbers are in line, then I am optimistic we can see each of them hit their strides again.