Is a weak dollar a good thing? If you’re asking the U.S. car industry, it most definitely is. Imported car prices have reached their highest point in the last 12 years, thus driving some of their prospective buyers away.
According to the U.S. Bureau of Economic Analysis, in August the average price of an imported car reached a record high of $31,536. That makes the price difference between a comparable domestic-made car $7,614, which is the largest since December 1999.
Add to that the severe supply issues faced by the Japanese manufacturers, who are only now starting to recover from the aftermath of the March 11 earthquake, and it’s easy to see why more and more American car buyers are choosing domestic brands instead.
This trend is very popular in more affordable cars, where the yen’s strength compared to the US dollar diminishes profits for Japanese carmakers, which in turn, limit their sales.
“It’s very hard to import small cars right now, especially from Asia, because of where the dollar is”, said chief economist for Nationwide Mutual Insurance Co. in Columbus, Ohio. Yesterday, the yen rose less than 0.1%, to 76.84 per dollar.
Another reason for the increased popularity of US-made cars in their home market is the fact that local manufacturers have minimized the difference in quality between their products and those of their Japanese rivals.
A 2009 J.D. Power study found that the difference in the numbers of problems owners of Toyota, Chevrolet and Ford cars was “statistically insignificant.”
Consequently, in the first nine months of 2011 GM’s US market share has risen to 20% and Ford’s to 16.7%, while U.S. light-truck sales have increased by 10% compared to last year.
The sales drop and the rising yen are also making discounts almost impossible to Japanese carmakers, which are losing their last weapon in their effort to reclaim their lost share. IHS stated that it is “not expecting the usual year-end clearance promotions” from Toyota and Honda.
The only solution, as first adopted by Nissan’s CEO Carlos Ghosn, is cost-cutting. Honda has already decided to halve its domestic production, while Toyota is taking more drastic measures, like retooling old assembly machines, pushing its suppliers to lower their prices, and for the first time, manufacturing hybrids outside Japan.
In the meanwhile, models like the Chevrolet Cruze will continue to benefit from its competitors’ troubles gaining market share against the Corollas and the Civics and increasing U.S. carmakers’ profits.
Story References: AutoNews
