Japanese Automakers’ Growth Slows Due to Yen and U.S. Slump
March 25, 2008

TOKYO — The Japanese auto industry’s seemingly unstoppable ability to grow profit is grinding to a halt, Reuters newswire reported Tuesday.

The sector, led by Toyota, Nissan and Honda, has grown profits for seven straight years by expanding sales in overseas markets and cutting costs. But a slide in profits looks increasingly likely in the next business year that stars in April due to a slowing U.S. economy, rising costs for steel and other commodities and the U.S. dollar's tumble to a 13-year low against the Japanese yen.

Reuters cites a report by Japan’s Daiwa Institute of Research that estimates the combined operating profit of Toyota, Nissan, Honda, Suzuki, Mazda and Fuji Heavy Industries (the parent company of Subaru) would drop by about one-fifth if the dollar stays at 100 yen through the year.

A stronger yen makes cars imported from Japan less competitive abroad while also slicing into profits made in the U.S. when brought back to Japan. Experts say for every one-yen gain on the dollar, Toyota's operating profit is cut by about 35 billion yen. That means if the dollar settles at about 100 yen, Toyota could see more than $4 billion wiped away by currency fluctuations alone.

The slumping U.S. car market, expected to be its lowest level in at least a decade, compounds the problems of Japanese automakers, which have also seen soft sales.

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