Lutz Says Proper Exchange Rates Take Luster Off Asian Auto Makers

HOLLYWOOD, CA – General Motors Co. Vice Chairman Bob Lutz says recent U.S. sales gains by Hyundai Motor Co. Ltd. have not come at the expense of his company, and he expects a weaker dollar to further level the playing field between Detroit and its Asian competitors.

“That’s imports beating up on imports,” Lutz says of Hyundai’s momentum.

According to Ward’s data, the South Korean auto maker’s share of the U.S. market grew to 4.3% in October, compared with 3.1% year-ago. GM’s share fell to 19.9% from 22.3%.

But with a weakened dollar, Lutz doubts Hyundai’s steady march can continue much longer.

“Hyundai’s success is based on very aggressive pricing,” he tells Ward’s prior to the introduction of the new-for-’11 Buick Regal here. “Over time, it’s not sustainable, because of the drop in the dollar vs. the Korean won.”

The Japanese yen also is strengthening, which further will level the playing field between GM and longtime rivals, such as Toyota Motor Corp., he says.

Through bankruptcy, GM shed billions of dollars in debt eating away at its profits and also gained concessions from the United Auto Workers union, slashing labor costs.

Days of lopsided yen/dollar values over, GM Vice Chairman Bob Lutz says.

The savings should allow GM to sink more money into developing new products, refreshing existing ones more often and perhaps becoming more aggressive on pricing – all luxuries afforded to Japanese competitors as they enjoyed a weak yen and strong greenback for the last 25 years.

Now it’s GM’s turn to benefit from favorable exchange rates, Lutz suggests.

“The yen was so weak, Japanese producers had roughly a $4,000 cost advantage,” he says. “No matter how hard we tried, when another company has a $4,000 cost advantage, it doesn’t matter. Ultimately the guy with the big cost advantage wins.

“It’s finally over,” he adds, blaming the lopsidedness on past U.S. fiscal policies that supported a strong dollar.

“Everyone would say, ‘Look at these wonderful Japanese producers with great cars at low prices. What geniuses they are.’ We get the exchange rate correct, and suddenly they are not geniuses any longer. They’re just like the rest of us that have to struggle with costs.”

Since peaking in March, the value of the dollar against a sampling of foreign currencies has declined nearly 17%, the ICE Dollar Index shows. According to the Federal Reserve, the yen has gained 9% against the dollar in the last year and 32% since earlier this decade. The won has gained 23% against the dollar in the last year.

Despite Lutz’s confidence, it’s unclear whether the dollar will remain as weak as today. Federal Reserve Chairman Ben Bernanke told the Economic Club of New York Monday his organization is watching the dollar closely, driven up and down in value by recent fluctuations in the U.S. economy.

“We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability,” Bernanke says, according to a transcript of his speech.

“Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.”

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