Friday, December 7, 2012

Hollowing out is good for Japan

...Ohio car plants support healthcare in Japan...
The story on Honda's rise to #2 [6 Dec 2012 Nikkei 12年の国内新車販売、ホンダ2位浮上へ 「軽」で躍進]. Much more important, though, is the Bloomberg story by Alan Ohnsman on the rise of the US as an export base for the Honda Accord. Why? -- production in Japan has ceased.
Now the auto industry has long worked to produce where vehicles are sold. That shortens supply lines and improves the link between sales and production. It also avoids foreign exchange risk, still painful at today's rate of US$1.00 = ¥82.46.
Of course that's good news for Ohio, as it will mean Honda will have to add capacity, on top of that being added by Chrysler at the Jeep plant in Toledo. It does however represent the gradual shrinking of the industry in Japan.
With an aging population, that's bot inevitable -- the number of licensed drivers is already declining -- and necessary. Japan needs more and more healthcare workers. Over time it can (and will) generate them by shrinking manufacturing.
A prominent trade economist once quipped that the US had an extremely efficient automotive industry in Kansas wheat farmers. Well, in the same vein it's our turn: Ohio car plants will henceforth support healthcare in Japan.
...mike smitka...


Michael Thomas Cucek said...

I am not sure “foreign exchange risk” is apt here. Unless, of course, the managements of car makers are completely incompetent. Foreign exchange risk should be hedged through derivatives.

Mike Smitka said...

You can hedge forex risks out to six months without much problem, harder if you want to go out a full year, but thereafter it becomes first more expensive and then impossible. [Bond swaps offer an exception, but in those cases you're matching payment streams.]

The auto industry though works on a time horizon of years ... depending on where you are in the supply chain, right now you're working on the engineering of vehicles that won't come out until 2015 and (if sales pan out) will still be on sale in 2019 (and even longer for pickup trucks and parts of car powertrains).

So if you choose to export / import in the auto industry, you can hedge within an annual budget or financial reporting cycle, but not within a production cycle.