Ford Motor Company (F), General Motors Company (GM): The Top 3 Problems for American Automakers

Problem three: The Japanese government could make it harder to compete

Why should Detroit care about the Japanese government? No, it’s not because of Japan’s trade barriers, which are actually pretty modest despite what you may have heard. It’s because of exchange rates, specifically, because the current Japanese government is trying to jump-start the country’s economy by making its currency cheaper.

Who cares? Ford, GM, and Chrysler sure do, and here’s why.

When we say the yen is getting cheaper, what we mean is that the exchange rates have moved in such a way that you get more yen for your dollar. Instead of 86 yen for the dollar, as it was at the beginning of the year, now it’s around 99 for the dollar.

That means every dollar earned by a Japanese company here in the U.S. is worth more money at home. And that means that the Japanese companies can charge fewer dollars for their products and still have a nice profit when those dollars are converted to yen.

That’s a big worry for Detroit. After years of struggling, Detroit has finally reached the point where its best products can compete head-on with the likes of Toyota and Honda Motor Co Ltd (ADR) (NYSE:HMC), with no excuses (or profit-sucking discounts) needed. Just look at the hot new Ford Fusion, which has been selling like hotcakes — and gaining on Toyota’s Camry in a big way.

Ford’s Fusion is going head-to-head with Japan’s best — and winning. Photo credit: Ford Motor Co.

The worry now is that if the yen slips far enough, the Japanese brands will be able to cut their U.S. prices without hurting their profits at home. Nissan (OTCBB:NSANY) already made some price cuts at the beginning of May that gave their sales a big boost.

If the other big names follow suit, then Ford and GM and Chrysler will face a tough choice: Cut their own prices (and profits) to compete, or risk losing a lot of sales. That’s why the Japanese government has to be high on Detroit’s list of worries right now.

The article The Top 3 Problems for American Automakers originally appeared on Fool.com and is written by John Rosevear.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors.

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