TOKYO -- The soaring yen is squeezing Japan's automakers' price margins, making it harder for Japanese brands to lure back buyers with incentives.
The magnitude of the yen's impact hit home in earnings released this month. It wasn't pretty.
Toyota Motor Corp., for example, posted an operating loss of ¥32.6 billion ($425.5 million) for the April-September fiscal first half, after unfavorable exchange rates lopped off $1.7 billion.
Virtually all Japanese auto companies took a similar beating. Lower profits mean less money available to put on the hood as incentives.
"This yen has really changed the ballgame for them," says Mike Jackson, CEO of AutoNation Inc., the largest U.S. dealership group. "Even though they've given up a lot of share -- and normally they'd be moving aggressively to get that share back -- I think they have to think that the economic equation has changed and they can't just open the incentive valve as they maybe once would've."
The problem: U.S. dollar sales don't bring in yen for Japanese companies like they used to.
Last year, every dollar taken in from the sale of a vehicle exported to the United States meant about ¥83 in revenue to a Japanese automaker. On Oct. 31, that same dollar equated to just ¥75 in revenue, but the automaker's costs, in yen, to build a car in Japan hadn't gone down.
Satoshi Ozawa, an executive vice president, warned that Toyota's domestic operations were on pace to break even next year -- but only if the dollar rises to ¥85.
To understand his warning, consider a Japan-made Toyota Prius III, one step up from the base model, with a sticker price of $24,520 and an invoice price of $22,825. Toyota doesn't disclose the wholesale price that the Japanese parent receives for the car, but $21,000 is a reasonable guess. Last year the parent company booked ¥1,743,000 from that sale. This year: just ¥1,575,000.
That's $2,240 less revenue. If costs stay the same, that lost revenue could mean the difference between enough profits to offer incentives or possibly selling the Prius at a loss.
General Motors CEO Dan Akerson told Automotive News, "I'm not as worried as I might have been" of a Japanese-sparked incentive war. "The Japanese yen has rallied against the dollar, which makes it tough to be as aggressive, maybe, as they might otherwise be if the yen were weaker."
Some Japanese auto executives say raising prices is a nonstarter.
"Prices are determined by competitors and market conditions," says Mazda Motor Corp. CEO Takashi Yamanouchi, whose company exports 80 percent of its Japan-made vehicles. "So it's not something that you can lightly play with, despite the strengthening yen."
Jason Stein and Mike Colias contributed to this report