The head of Toyota (NYSE:TM) recently said that a recall of four million cars with floor mat problems would not hurt company profits anywhere near as much as a surging yen and falling dollar. The head of Sony (NYSE:SNE) said that his company might have to do more “streamlining” due to the dollar’s falling value.
Large overseas companies, particularly those based in Japan, are beginning to signal that they will lose money in calendar 2010 when they had forecast profits.
The trouble that Sony and Toyota have is that their sales will only recover modestly as the economy in the West remains close to stagnant. These companies have already cut costs in anticipation of anemic revenue improvement. There is very little that they can do in the face of a weak dollar other than greatly increase their market share in their respective industries to move revenue up, or further cut costs to move back into the black.
Sony and Toyota are large enough so that picking up significant share against other large competitors in their industries is unlikely. That means that they will probably go through another round of significant layoffs along with other multinationals based in Japan. Most of these firms have big operations in the US so the firings will extend to their American subsidiaries.
Unemployment in the US has yet another cause–a weak dollar.
Douglas A. McIntyre
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