Flexibility the key to ForEx fluctuations: Toyota

Local manufacturers broadly welcomed the Federal Government's New Car Plan when it was announced in November of last year, but one sticking point was the import tariff applicable from 2010.

The government announced in the plan (more here) that the import tariff will be reduced from its current 10 per cent level to just five per cent, with effect from January 1, 2010.

That will, according to the manufacturers, theoretically leave locally-manufactured cars at the mercy of cheaper imported cars in the market. In practice, that won't necessarily hold true, if the Aussie dollar remains at or around its present level of US$0.71 or 67 Yen through 2009 and 2010.

Even if it doesn't, Falcons and Commodores (and Toyota's Aurion to some extent) won't feel the heat so badly, since few cars from overseas compete directly with these locally-manufactured large cars.

The real problem faced by the manufacturers is two-fold. Firstly, Ford and Holden have committed to building small cars here and these are likely to launch into highly competitive market segments, relying on the dollar being relatively low to ensure the finished products' competitive edge.

Secondly, all three of the manufacturers are importers too. Toyota in particular is highly dependent on its imported product lines across the 12 market segments in which it competes. If the dollar is too low against the Yen or the Thai Baht, Toyota's imported products may find themselves in competition with new products from China -- and, of more immediate concern, competitive vehicles sourced from a rapidly gaining South Korea.

During a wide-ranging interview last week, the Carsales Network asked David Buttner, Senior Executive Director Sales and Marketing for Toyota in Australia whether the company preferred a high-value dollar or a low-value dollar.

"It's a challenging question," he replied.

"Last year, we shipped 101,563 vehicles overseas -- and we export in US dollars. So you can imagine when we were nearly at parity -- and for the first six months of the year, that's all anyone spoke about. It got to within a bee's dick of being parity on both Yen and US dollar, right?

"As a CBU importer, we pay in Yen. So for us, we've got to hedge our bets both ways. I guess we're big and ugly enough -- and been around long enough -- to understand that the economy will always dictate what the exchange rate will be, vis-à-vis what's happening in the global economy. We have to make sure we have a manufacturing operation which can flex between both left-hand drive and right-hand drive, and we have to have a good mix, in terms of the balance of our production [for] export and domestic.

"Do we have a preference? We'd like them both to be in a state which keeps us profitable. That's never going to be the case, you've just got to make sure that you've got the flexibility and the ability to ride out whatever the exchange rate may be at the time."

Based on Buttner's explanation of the export/import situation for TMCA, the company would likely prefer the Aussie dollar remain undervalued against the Korean Won and the American dollar, but pick up value against the Yen and the Baht.

And if the Chinese can be convinced to float the Yuan, all the better...