Asians to build more cars in US

2012-01-12 13:34

NEW YORK - Asian automakers are boosting output in the US to counter production bottlenecks abroad and disadvantageous exchange rates there

Falling wages in the US, a by-product of the financial crash, have made local auto production more attractive for Asian companies inside the country.

Toyota, Honda and their compatriots found their supply chains in Asia broken in 2011 after devastating earthquakes and tsunamis hit Japan in March; then came widespread flooding in Thailand in the second half of the year. All this mean US dealers ran out of stock and started to lose market share to American and European companies.


Nissan chief Carlos Ghosn said at the 2012 Detroit auto show this week that Nissan ran into supply bottlenecks that made it hard to keep up supplies of the company's popular electric Leaf. He blamed the break in the availability of batteries from Japan.

Ghosn said: "We are going to have to solve this problem by producing the Leaf and its battery in the US."

There is also the currency factor: the Japanese yen has jumped against the dollar to post-World War II record highs, making it far more expensive than before to sell Japan-made vehicle and parts  in the US.

The yen has risen 54% against the dollar in the past five years and eight percent in the past year. That makes it more attractive to produce components and cars aimed at the US market inside the United States.

A third incentive is that wages for workers in US auto plants have fallen since the economic crisis three years ago, boosting the domestic industry's competitiveness.


David Cole, director of the Centrer for Automotive Research, said: "The changes have made it very uneconomic to manufacture something in Japan and ship it to the US. The whole idea is to neutralise those very volatile exchange rates by producing where you sell."

That was the idea behind VW's new plant in Tennessee, with the Europeans also having suffered a strong euro for the past five years, and extreme volatility in exchange rates over the past two.

Ghosn confirmed that the strong yen was a challenge. Nissan US makes 70% of its stock in North America. That could be pushed to 90% quickly. The group is developing its production in Mexico and Brazil, where it has opened plants, but is hiring 1300 more people in the US.

Honda says it will boost its North American production by 15-20% by 2015, adding a plant in Mexico in 2014.

It is still cheaper to produce in China or South Korea but Cole says transport costs outweigh the savings and American plants are more productive than Asians.. "US factories have become more automated and are software-controlled," he explained.

"More-skilled employees are needed. Once you could be a high-school dropout; now you need a minimum two years of college education."