The yen is getting stronger to almost record levels, prompting Toyota Motor Corp. to seriously consider transferring more production abroad. In 2010, Toyota had produced 45% of its cars in Japan.
At a recent press conference in Tokyo, Chief Financial Officer Satoshi Ozawa said that he feels like the carmaker’s efforts have surpassed the limits in handling the yen’s impact.
President Akio Toyoda said that he wants to protect the jobs of the Japanese workers but its profitability is being compromised by the yen closing in on levels reached after World War II.
He also pointed out that its rivals in Korea are benefiting from a weaker won and a new free trade agreement between the U.S. and South Korea. The yen’s strength and the earthquake-related parts shortages contributed to Toyota’s profit in the fourth quarter dropping by 77%.
The impact has been so great that Toyota may have to give up its crown as the largest automaker in the world to General Motors Co. in 2011. Toyota said that in the year ended March 31, the stronger yen reduced operating profit by 290 billion yen ($3.6 billion).
This is higher than the 110 billion-yen cost from the damage resulting from the March 11 earthquake that forced Toyota to stop production at Japanese plants for two weeks and made domestic sales drop.
Jim Hall, principal of 2953 Analytics, a consulting firm in Birmingham, Michigan, said that Toyota is likely to invest more in southeast Asia, particularly in China; however, it may be a more complex setup since it has to work with two local partners. He added that Toyota may also bring its expansion plans to Europe, mainly in eastern Europe.