Question for BRZ and GT-87 hps?

[dsgerbc]

Originally Posted by LSxJunkie

It'd be helpful for me to figure out who is and isn't talking out of their asses.

I'd like to point you to gadflyii's post in this thread stating his experience with a plethora of cars, and one of the first reactions being one of incredulity.

Meh, trust no one, evaluate everything yourself

Case in point: I know a few "fast autox guys" with lots of experience etc, who have no idea what makes them fast. Things they say contradict basic physics

[LSxJunkie]

Originally Posted by dsgerbc

Meh, trust no one, evaluate everything yourself

Case in point: I know a few "fast autox guys" with lots of experience etc, who have no idea what makes them fast. Things they say contradict basic physics

They might not be able to, but a chassis engineer with some data recorders would.

[Corey]

I have been posting my sources, please click the links in my posts.

I don't see how any credentials or experience matter. I have provided sources of the quotes I used, and even a google search filled with information supporting what I have been saying. To call this an argument would imply there is some merit to what dsgerbc is saying. Exchange rates aren't some big secret and no one besides dsgerbc is trying to hold the wool over your eyes. All I have to do is turn on my local news to hear about the problems associating with the strengthening of the yen in the world market, the toll it's taken on Japan's export economy, etc. This isn't complicated.

The 86 is produced in Japan.
It will be sold in America.
The strengthening of the yen vs the american dollar means that the cost to produce the car rises relative to the american dollar.

I cannot comprehend what you don't understand about that. Toyota is trying to price the car to be competitive in the American market, yes. That means that at best the strengthening of the yen is cutting into the profit margin of the car, or at worst they are taking a loss on every car sold. It isn't a stretch to say Toyota would sooner raise the price of the car than sell it at a loss. There is no magic here.

Originally Posted by dsgerbc

That's meaningless. You're not comparing producer cost, but retail prices. Those things depend on a lot of taxes, corporate and otherwise, target country demographics/demand strength and many other factors.

Well, I agree it's meaningless when you quote a single sentence and take it out of context.

[Canibuz]

Originally Posted by tranzformer

That would be an interesting conversation to be part of. What did they conclude? That the F-22 would kick their butts in the end anyways?

Most people considered it cheating... but this still happened...


http://www.flightglobal.com/blogs/th...boasts-f-.html

[Corey]

It took all of a couple minutes to find this:

The impact of the yen’s exchange rate, with a 50 percent surge against the dollar in the past five years, is entering“non-linear” territory, where gains have a deeper impact on business decisions, according to Jens Nordvig at Nomura Holdings Inc. The trend is already seen in moves by companies from Toyota Motor Corp. (7203), which has boosted foreign output to 58 percent of the total from 49 percent five years ago

“The Japanese government needs to quickly take action to combat the strong yen -- it’ll be impossible to reclaim domestic auto manufacturing jobs once they’re shifted overseas,” Akio Toyoda, the president of Toyota, told reporters in Tokyo Nov. 7.“Japan’s automobile industry may experience not only a‘hollowing out,’ but a collapse.”

from http://mobile.bloomberg.com/news/2011-11-09/yen-emulating-franc-places-toyota-led-japan-rebound-in-jeopardy

The yen has risen by some 17% against the dollar over the past two years, even as Japan has repeatedly intervened to stem the rise. Toyota isn't the only Japanese auto maker struggling with the surging yen when it comes to exported vehicles; Honda and Nissan also are feeling the impact. But of the three, Toyota retains the largest Japanese production base, meaning its costs are most sensitive to yen appreciation, notes Credit Suisse analyst Christopher Ceraso.

As Morningstar points out, each one-yen rise against the dollar is about a 32 billion yen ($417 million) hit to Toyota's operating income—more the double the impact on Honda. Moreover, at current levels of roughly 76 or 77 yen per dollar, Japan's output of vehicles like compact cars for the U.S. market is rendered unprofitable.

from http://online.wsj.com/article/SB10001424052970204368104577139123595062492.html

Toyota officials have said that at exchange rates below 80 yen to the dollar, the company loses money on subcompact exports such as the Yaris. The dollar and euro weakness against the yen reduces the price competitiveness of Japanese exports in overseas markets and erodes the value of foreign profits on corporate Japan’s balance sheets.

Toyota still makes in Japan nearly half the vehicles it sells globally, leaving it more exposed to currency risk than Japanese rivals Nissan Motor Co. and Honda Motor Co., which make about a third of their respective output in Japan.

At current exchange rates, the company forecasts a parent, or unconsolidated, loss of ¥80 billion yen, which would mark its first dip into the red in reported after-tax income.

from http://dollarcollapse.com/inflation/currency-wars-%E2%80%9Cstrong-yen-is-destroying-japanese-industry%E2%80%9D/

"This issue has gone beyond the capacity of one company to address,” Mr Toyoda told a gathering of European journalists on Wednesday, adding that it was “impossible to make a profit” exporting vehicles from Japan at current exchange rates.

from http://www.ft.com/cms/s/0/a5df927c-1b63-11e1-8b11-00144feabdc0.html#axzz1oyfiuzhA

This year’s albatross for Toyota involves the soaring value of the yen, a man-made disaster over which Toyota has no control. Thanks to weak economies outside of Japan, the yen has been gaining value against the dollar, the Euro and other important currencies, as seen here in the dollar’s plunging value against the yen.

It’s not a good scenario for an exporter like Toyota, which pays for much of its car production in high-valued yen and sells most of its cars in lower-valued currencies. Either customers pay more for a Toyota than the equivalent Chevy or Volkswagen, or Toyota eats some of the costs. For the most part, Toyota has been eating costs.

from http://ycharts.com/analysis/story/but_for_the_mighty_yen_toyotas_annus_horribilis_wo uld_be_a_distant_memory

Now here is what you are saying:

Originally Posted by dsgerbc

Exchange rates are only marginally important, otherwise we'd be all driving Chinese cars already.

Originally Posted by dsgerbc

Companies with large exports typically have pre-arranged long-term currency swap agreements with banks/financial sector. So short-term fluctuations in exchange rates don't matter. Over the long-term countries with consistently appreciating currency (if there was such a thing) would experience a slowdown in wage growth, negating the effect of nominal exchange rate. So yeah, exchange rate movements are secondary. Especially in business that's not labor intensive, such as car production.

Originally Posted by dsgerbc

^I'm fully aware of what's going on in Japan and in the auto industry. Some people just like to blame things on the exchange rate. Decision to build a factory overseas is the same as 'outsourcing' here in US. It works until it doesn't, and then you're stuck. I didn't say exchange rate isn't important at all, but it's waaaay a secondary factor (because short-term you can hedge your business from fluctuations and in the longer run other prices adjust, bringing _real_ exchange rate back in line). Exchange rate might've been a tipping factor in the linked article, but the weight of the issue alone is likely small. Transportation costs in a world of high oil prices are likely to factor a lot more into the decision. And anyone who bases long-term strategic decisions on a directional forecast of the exchange rate is stupid. Exchange rates are almost unpredictable, and the best forecast for X years into the future is where the exchange rate is today.

Exchange rate movement quickly hurt exporters when they are:
a) small and can't justify establishing financial hedges (not true for auto-manufacturers)
b) price things in export markets according to domestic price X exchange rate. Nobody in auto business does this. Most cars are "priced to market".
c) banks walk-out on pre-arranged rates. This happens, but not too often.

Over the longer run, if exchange rates persist (and hedges at old rates expire), they will bite, but the firms should have plenty of time to prepare, alter cost structure and otherwise mitigate the issue.

At least if people read this thread now the information is here for them to conclude you are delusional by themselves.

[dsgerbc]

If you keep quoting management that tries to spin its poor profits in a way that makes it appear less of a management failure I see little point debating.

The real reason here is management failure. Just for the sake of illustration: suppose in 2007 you have a 5 year deal with some financial sector firm to swap your dollar revenue for yen at a rate of 95 yen/dollar. So now you're in 2010 for example, exchange rate is ~80 and it looks like there's zero chance of renewing your swap arrangement at the same rate when it's up in two years, but you have that time. Prudent management would start preparing: cut costs, relocate R&D personnel (to U.S. for example), find alternative suppliers for large and expensive parts (say China/Korea/U.S.) etc. Sure, cutting domestic wages is hard, but wage bill (attributed domestically, thus not declining with the strengthening yen) is only 10-15% of the cost of the car, so it's not too big of a problem. Not so prudent management: "hey, this exchange rate movement is temporary (safe heaven effect, crisis in Europe etc, whatever), let's wait it out". So in essence they make a directional bet on exchange rates. Which is always risky as hell. It makes short-term profit look good but costs arm and leg in the long run. This I would attribute to bad management, not exchange rate movement.
There's also a chance that they didn't have their dollar revenue adequately hedged, for whatever reason. That would also be a management failure.

[Sport-Tech]

^ Overly optimistic timeline for major shifts in Toyota's R&D, suppliers? I doubt very much such massive changes can be fully implemented in a two year window. No doubt Toyota will offshore much of its production as soon as it can swing it, but in the meantime it will use all the levers it can (including PR and media) to push the authorities into doing something about that exchange rate.

[Corey]

Originally Posted by dsgerbc

If you keep quoting management that tries to spin its poor profits in a way that makes it appear less of a management failure I see little point debating.

The real reason here is management failure. Just for the sake of illustration: suppose in 2007 you have a 5 year deal with some financial sector firm to swap your dollar revenue for yen at a rate of 95 yen/dollar. So now you're in 2010 for example, exchange rate is ~80 and it looks like there's zero chance of renewing your swap arrangement at the same rate when it's up in two years, but you have that time. Prudent management would start preparing: cut costs, relocate R&D personnel (to U.S. for example), find alternative suppliers for large and expensive parts (say China/Korea/U.S.) etc. Sure, cutting domestic wages is hard, but wage bill (attributed domestically, thus not declining with the strengthening yen) is only 10-15% of the cost of the car, so it's not too big of a problem. Not so prudent management: "hey, this exchange rate movement is temporary (safe heaven effect, crisis in Europe etc, whatever), let's wait it out". So in essence they make a directional bet on exchange rates. Which is always risky as hell. It makes short-term profit look good but costs arm and leg in the long run. This I would attribute to bad management, not exchange rate movement.
There's also a chance that they didn't have their dollar revenue adequately hedged, for whatever reason. That would also be a management failure.

So now you're telling me that Japan's economic crisis is a conspiracy perpetuated by Toyota's management, and that you know more about financial management than Japan's entire export industry. Cute.

By the way

This year’s albatross for Toyota involves the soaring value of the yen, a man-made disaster over which Toyota has no control. Thanks to weak economies outside of Japan, the yen has been gaining value against the dollar, the Euro and other important currencies, as seen here in the dollar’s plunging value against the yen.

http://ycharts.com/analysis/story/bu...distant_memory

At least do a little bit of research before you begin spouting drivel.

[dsgerbc]

Ratio of rudeness to coherent argument has exceeded the threshold beyond which I don't bother to reply.

[Corey]

Excuse me, I didn't realize we were arguing. I was under the impression you were just on some tyrade against common knowledge and wanted to make sure the rest of the forum didn't get caught up in the crossfire.

Anyway to summarize what I've been saying and put it in a context that clearly demonstrates its relevance to this thread:

Japan's export based economy has been strongly affected by the weakening of major currencies like the USD. Toyota is strongly affected, even more so than competitors, because they still produce many of their cars in Japan where the cost to produce the car rises in relation to the USD as the yen appreciates. This means that when the car reaches American soil it has to either be priced higher to make up for the relatively rising cost of production, or sold at a price that is competitive in the US market but likely at a net loss for Toyota. As evidenced in the big list of quotes I posted on page 14, up to this point Toyota has largely been eating the costs themselves rather than raising prices.

So what does this have to do with HP?

As we all know, more power means more money for the additional cost of a turbo, its related hardware, etc. Naturally this means the cost of the car would also increase. Toyota however is trying to sell this car to a specific market which means keeping it within a certain price range (I think I read they want it to be accessible to people just out of college?). Given their current financial situation, selling the car as is in the US at their target price is very likely a losing endeavor for them (again, as evidenced by various sources on page 14). This means any additional production costs to the car either come directly out of Toyota's pocket or the consumer's, and the latter option runs the risk of pushing the car out of its intended market entirely which is potentially disastrous as it was never meant to compete with something like a Z out of the box. Given Toyota's current financial situation (page 14..) they are not in any position to do the former either.

There's obviously a lot more to it than that, and I'm not even touching engineering or design choices, but that's basically what it boils down to on the sales side. The exchange rate plays a direct role in Toyota's profits and right now the strengthening of the yen against the dollar is taking a huge toll on the company.

[Allch Chcar]

Originally Posted by dsgerbc

Define what you mean by 'free market' in application to buying cars and I'll tell you where you're assuming too much relative to how things work in the real world.

First tell me if you are referring to MSRP or actual dealer invoice prices. I need a point of reference so that I don't bring a guitar to a banjo duel.