Japanese automaker Daihatsu, a subsidiary of Toyota, on Friday said it would pull out of the European market within two years because of the strong yen cutting profits. The strength of the currency has made exporting vehicles from Japan to Europe nearly impossible, it said, becoming the first casualty among Japanese automakers dealing with the unit's appreciation against the dollar and euro. Daihatsu said it will discontinue auto sales in Europe at the end of January 2013 but would continue to supply parts and after sales services.
"Daihatsu came to the decision because it could not make a business out of exporting completed units produced in Japan", a company statement said. The Osaka-based car maker said it sold 19,300 vehicles in 10 European countries in 2010, about a third of the 58,600 vehicles it sold in the region in 2007 before the onset of the global economic crisis. The yen has appreciated sharply against the euro since late 2008 and especially since mid-2010.
The euro currently fetches around 110 yen, near its lowest level in nine years, against around 135 yen in mid-2010 and 170 yen in 2008. Daihatsu added that deteriorating profitability was compounded by the increasing cost of developing vehicles that meet tighter CO2 emission regulations in Europe. Exporting from Japan was not a viable business "when the costs to meet European regulations on CO2 emissions are growing and the profitability is deteriorating due to a stronger yen against euro," it said.
In Japan, the automaker has forecast eight percent growth in net profit to 44 billion yen ($533 million). But recent surging quarterly profits for Japan's top companies belie the threat posed by a strong yen, as the unit's rise prompts firms to consider shifting production out of the country to stay competitive, say analysts.