Blame the yen all you want, Ford and Korea, but Abenomics is not the culprit

She doesn’t accept payment in yen.
She doesn’t accept payment in yen.
Image: AP Photo/Rogelio V. Solis
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First, South Korea’s finance minister, now the CEO of Ford Motors: It’s becoming increasingly popular to blame the yen for your woes.

“The most important thing that most countries around the world believe in is letting the markets determine the currency,” Ford’s Alan Mulally told Bloomberg TV. Another Ford executive, Joe Hinrichs, was more direct last month. The US government needed to “send a clear message that any future trade policies with Japan must ensure a level playing field and not come at the expense of American autoworkers,” said Hinrichs, referring to the Trans-Pacific Partnership free-trade pact.

For the sake of argument, let’s just ignore the pot-kettle situation involving four years of the US dollar weakening thanks to quantitative easing. And let’s accept that the yen’s depreciation is some vast Japanese conspiracy—that its value is somehow not being determined by the markets. What has Shinzo Abe’s dastardly currency debasement scheme done to hurt Ford?

Probably very little. Ford’s biggest market by a mile is the United States. But major Japanese carmakers have long since stopped actually exporting cars to the US. Instead, they actually just make them there:

Made in the USA.
Made in the USA.
Image: Automotive News data and Japan Automobile Manufacturers Association

And, sure, in theory, the cheaper yen makes those sales more profitable—if, that is, Japanese carmakers repatriate those funds and call it a day.

But that’s not what they’re doing. First, they still have to spend US dollars to upgrade equipment, pay for marketing, and write checks to their workers. Plus, many are actually expanding overseas, where it now takes more yen to invest in a factory. So the cheapening of the yen is not likely to have a massive impact on Japanese carmakers’ bottom lines at the moment.

That also means that those blaming Korea’s ho-hum GDP reading today on Abenomics are off-base, as well.

Hyundai and Kia rely heavily on exports, and a lot of that is to North America. But like their Japanese counterparts, major Korean carmakers have avoided currency swings and expensive shipping costs—and, in some cases, have taken advantage of cheaper labor—by setting up shop in or near their destination markets. In fact, both Hyundai and Kia now make more cars overseas than they do in Korea.

So the yen’s value is probably having a notable impact on neither Ford nor South Korean carmakers. A much more likely culprit of any struggles they’re experiencing is the collapse of demand in Europe—a major market for both Ford and Hyundai—and, for Korean carmakers, at least, the crumbling of domestic car demand.

Probably the biggest concern for Ford is how competitive it can be in Asia. But, again, any lack of competitiveness will not be because of the yen so much as the fact that it has been overly reliant on North America and Europe for its sales. Of course, it’s easier to scapegoat Abenomics than it is to admit to your shareholders that you suddenly have a lot of ground to make up in emerging markets.