LOS ANGELES -- With the yen at a record high against the dollar, Japanese carmakers are finding new ways to squeeze profits from vehicles they export to the United States.
Consider Lexus' redesigned GS 350, which arrives in the United States in February. To cut costs, Lexus is using asphalt spray instead of laminate sheeting on the underbody for noise suppression and recycled plastic instead of virgin for the protective cover beneath the engine.
It is carrying over the old six-speed transmission instead of matching the seven- or eight-speed transmissions that competitors offer, and is no longer offering a V-8 engine option.
Endaka -- surging yen -- is back, and so is the risky game of removing content from vehicles. With the Japanese yen surging to just 75 to the dollar, the old "build 'em where you sell 'em" philosophy no longer is enough.
To avoid price increases, as they hustle to increase North American plant capacity, Japanese automakers are using lesser-quality materials or removing features that once were deemed essential.
They're rethinking which features should be standard and which should be optional. And they're withholding some new technologies and deleting some products altogether.
The risk: Will shoppers and owners feel they're getting less for their money?
The past year has seen a particularly painful currency swing for Japanese automakers, who already were wringing their hands in August 2010 when the yen hit 85 to the dollar. But they still held out hope that it would return to a more comfortable level of around 100.
Today, at 76 yen to the dollar, Japan's automakers are making hard decisions about expanding production abroad, cutting back exports from Japan and reviewing how to price and equip their vehicles. Executives say that is preferable to raising sticker prices.
John Mendel, American Honda's U.S. sales chief, describes the current situation as "squeezing costs from a rock."
Yoshihiko Kanamori, chief engineer for the GS 350, says he scrambled to hit "cost-down" targets, while adding safety and telematics features and upgrading many visible features.
"We also had to select some specifications that should not be visible from the customer's point of view," Kanamori said through a translator. "The current-generation GS hybrid and V-8 have variable gear ratio steering, but for the new-generation, only the F-Sport model has it. The rest have the basic steering package."
Because the GS 350 is built in Japan, largely with Japanese components, the strong yen is a huge burden. So Kanamori knew it would be difficult for any GS 350 sold in the United States to generate profit.
Did the cost-down targets mean he couldn't engineer the car he wanted?
"There were no items omitted that I would like to have, but with this exchange rate we will have to raise the price," Kanamori said.