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Ford Says U.S. Loses as Yen Lets Japan Keep Excess Capacity (2)

August 22, 2013

Ford Says U.S. Loses as Yen Lets Japan Maintain Extra Capacity

Ford Motor Co. Explorer XLT sport-utility vehicles are parked and awaiting export to Japan at the Georgia Ports Authority Colonel's Island auto import and export terminal in Brunswick, Georgia. Photographer: Stephen Morton/Bloomberg

Ford Motor Co. (F:US), stepping up criticism of Japan’s auto industry, said a weaker yen lets carmakers led by Toyota Motor Corp. (7203) keep open plants that are producing a vehicle glut and threatening U.S. job growth.

Production for automakers including Ford is constrained in North America as U.S. sales rise, Joe Hinrichs, Ford’s president of operations in the region, said in an interview. At the same time, the weaker yen is supporting exports from Japan, which IHS Automotive estimates has 2 million vehicles of excess capacity.

“The industry is growing and capacities are a little tight in North America,” Hinrichs said from Dearborn, Michigan, where Ford is based. “Where is the extra available capacity going to come from? If Japan’s one of those places, in lieu of more manufacturing in the U.S., the American worker does lose in that proposition.”

His comments build on remarks by Chief Executive Officer Alan Mulally, who in June said Japan was manipulating its currency, and reflect a threat that Ford sees to continuing its recent growth in the U.S. While the automaker has been the industry’s biggest market-share gainer this year, Toyota outsold Ford in July for its first monthly win since March 2010.

Building new auto plants or expanding existing factories can be costly. Ford committed to $6.3 billion in investments through 2015 for retooling and upgrading plants in its 2011 contract with the United Auto Workers union.

U.S. Market

Hinrichs, 46, is voicing concerns as a weaker yen makes cars exported from Japan more profitable for its automakers. Those companies, led by Toyota City, Japan-based Toyota, have production capacity available in Japan, and the U.S. is the most attractive market for those vehicles. Europe’s auto market is on pace for its worst year since 1993, and a territorial dispute with China has crimped demand for Japanese autos.

The weaker yen is “clearly a threat, and the market doesn’t know how to price it in yet,” Adam Jonas, an analyst for Morgan Stanley based in New York, said in a telephone interview. While Japanese automakers’ plans to add North American capacity should partially assuage Ford’s concerns, Toyota and others still will benefit from yen-denominated parts that are used to build those vehicles, he said.

U.S. automakers led by Ford have criticized Japan as the yen has declined 12 percent against the dollar this year. U.S. lawmakers have since pressed for provisions that would prevent currency manipulation to be a part of a trade pact with Pacific-region nations including Japan.

Fusion, F-Series

Ford has said it plans to add almost 3,500 hourly workers in the U.S. this year as it increases capacity to build 200,000 more vehicles annually in North America to meet increasing demand for F-Series pickups and Fusion sedans.

The new employees will start at an entry-level wage first agreed to by the UAW in 2007, which brought their pay closer to what workers make at Japanese automakers’ U.S. factories. The arrangement was extended by Ford and the UAW’s 2011 contract, which called for new workers to start at $15.78 an hour, compared with about $28 for senior employees. The entry wage rises to $19.28 by 2015.

Data released by the Detroit-based union’s Ford department this week show the extent of Ford’s hiring in recent years. Ford had 8,819 entry-level employees as of earlier this month, according to the first report released from a new section of the UAW department’s website.

Ford is permitted to hire 4,058 more employees at the entry level before it has to begin transitioning workers to senior worker wages, according to the report.

Industry Revamping

The entry-level wage agreement was among the actions taken as the U.S. auto industry restructured, culminating in the 2009 bankruptcies of the predecessors of General Motors Co. (GM:US) and Chrysler Group LLC.

Ford avoided bankruptcy by borrowing $23.4 billion in late 2006 and closing 16 plants from late 2005 through 2009 to bring its production in line with demand.

Japan’s auto industry has yet to take similar steps to reduce its output, Hinrichs said. While the nation’s automakers have the capacity to build 11 million vehicles this year, they probably will produce about 9 million, said Masatoshi Nishimoto, a Tokyo-based analyst at IHS Automotive.

“North America went through its restructuring,” Hinrichs said. “You look at Japan, and for lots of reasons, culturally and otherwise, the industry hasn’t restructured the excess capacity.”

Ford rose 1 percent to $16.41 at the close in New York. The shares have gained 27 percent this year as the Standard & Poor’s 500 Index has advanced 16 percent.

To contact Bloomberg News staff for this story: Craig Trudell in Dearborn, Michigan at ctrudell1@bloomberg.net; Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Chua Kong Ho at kchua6@bloomberg.net


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