DETROIT, 19 August 2007 — Facing some intense competition for long-held spot as the world’s top automaker to Japan’s Toyota, General Motors’ top executive reiterated late Friday the yen is still undervalued on world’s currency markets.
“I think, in the next five or ten years, the bias is for the dollar to weaken and all the basic economics suggest that it should,” GM Chairman and chief Richard Wagoner told reporters during an impromptu press conference after the financial markets had closed in the United States.
American automakers have cranked up a major campaign focusing on what they describe as the undervalued Japanese yen, Wagoner acknowledged.
From GM’s perspective the yen at 114 is a lot better than the yen at 120, he added.
“That’s good,” said Wagoner, adding the yen’s true value is somewhere in the range of 90 to 100 to the dollar.
“It would be a huge change in the competitiveness. I think my colleagues in Europe would agree as well,” he said.
“It would dramatically level the competitive field if we saw the yen at 90 to 100 range,” Wagoner said.
“I think a couple of things could happen. If they yen strengthens, I think the dollar and the euro might be more stable. I think it would make the Europeans feel a lot better if we saw some adjustments from the Asian currencies particularly the yen.” Wagoner also said it could halt the flow of manufacturing and auto jobs out of the United States.
“I think the US has become somewhat more competitive and as we look at the strategy of global architecture and integrating our capacity, it does offer some opportunities if we get our costs in line,” he added.
“Some categories of products that we produce here have significant global markets. We do export a reasonable number of full-size SUVS for example,” Wagoner said.
“We are, in a much more disciplined way trying to make sure that products we think have appeal outside their local region are set up to meet the requirements of other. We should be set up to do more of that over time,” he said.
“Some of the technology we’ve highlighted here will be applied beyond the US,” he added.
GM’s efforts to reduce costs also continue to pay dividends, Wagoner said. “I don’t want to leave the impression the bulk of the cost cutting is done,” he said. “I think we still have more work to do on that. The more fun and ultimately the very important part of this, is the revenue side, which, by its nature, has a longer time to fruition, while we bring out better products. We’re not at the point where it’s paying off yet.” Wagoner also said he was pleased the Federal Reserve Board had elected to cut rates since auto sales have been sluggish for the last several months.
“We’re continuing to run below trend demand here at the retail level in the United States, but I’m not sure where we are today I can give you a convincing case when that’s going to come back,” Wagoner said.
Wagoner, however, declined to say whether the recent disarray in the financial markets would have a negative impact on GM’s ability to transfer its huge liabilities for employee health-care to a new independent trust, clearing them off GM’s own balance sheet.
The creation of the VEBA trust, which would have to financed by automakers like GM are at the center of the negotiations with the United Auto Workers.
Wagoner, however, declined to discuss the implications of the inability of private equity firms and others to raise money through the sale of junk bonds.
The fallout from the credit crunch has hurt GM’s own mortgage financing business, which is now operated with Cerberus, the New York-based private equity firm.
“We do have a very strong liquidity position,” he said. “It’s not the best time to go out a raise money,” he said.
“The liquidity has come in the last couple of days. The discount rate is done. It had gotten to the point where it was disruptive and (the Fed) reacted to that,” he noted.
“People won’t buy even prime credit jumbo loans,” he said. “It was hard to find people to buy high rated paper. I don’t think that’s unique to GM. That market has significantly closed down.
“That’s highly unusual and not constructive to the economy when prime credit is not available for housing, which drives the whole economy. It feels like it’s temporary situation. Obviously people are retrenching and my sense is when these adjustments happen, people tend to overshoot on the downside,” Wagoner observed.
The euro tumbled to 155.01 yen — a level last seen on March 19. The single currency has fallen 8.3 percent in value since reaching an all-time high of 168.95 yen on July 13. The yen benefited as dealers pulled out of carry trades that involve borrowing cheap credit in countries like Japan to invest in regions with higher interest rates.
