international finance
1. Why is GM worried about the yen?
GM’s concern about fluctuations in the Yen is due not only to the impact on GM’s costs, but the fact that Japanese competitors face reduced costs when the Yen is depreciating. Also, with increasing profit margins, end-price to consumer can be lowered and lead to gain in market share for Japanese competitors. Research had shown that a 10 Yen appreciation to the dollar reduces operating profit by $4 billion
2. How important is GM’s competitive exposure?
GM’s competitive exposure to yen derives from the yen’s effect to GM’s competitors. That is, with the expectation of a depreciation in Japanese yen, the expected profit of GM’s Japanese competitors will decrease. Hence, the Japanese auto price will correspondingly reduce, this will lead to a reduce of GM’s market share. Besides, the auto price elasticity is 10% change in sales result from 5% change in price, which is relatively high within the manufactory industry, thus with one dollar change in selling price the market share will fluctuate a high portion subsequently. Additionally, Japanese auto companies derives around 50% of their profit from the US market. And with one yen depreciation against the US dollar, Japanese auto firms will gain a $400 million operating profit from the US market.
3. How would you go from the information in the case about competitive interactions with Japanese manufacturers to a value exposure for GM?
Assume the yen depreciates 20% against the U.S. dollar and trace the effects of that move all the way to GM’s market value.
4. What other methods might allow you to assess the competitive exposures of GM, specifically, or other firms generally? How would you implement such a method?
First we suggest to calculate the total net exposure of following factors: financial exposure, investment exposure and outstanding debt. Afterwards, the competitive exposure figure is the product of percentage change of yen level (depreciation or
GM’s concern about fluctuations in the Yen is due not only to the impact on GM’s costs, but the fact that Japanese competitors face reduced costs when the Yen is depreciating. Also, with increasing profit margins, end-price to consumer can be lowered and lead to gain in market share for Japanese competitors. Research had shown that a 10 Yen appreciation to the dollar reduces operating profit by $4 billion
2. How important is GM’s competitive exposure?
GM’s competitive exposure to yen derives from the yen’s effect to GM’s competitors. That is, with the expectation of a depreciation in Japanese yen, the expected profit of GM’s Japanese competitors will decrease. Hence, the Japanese auto price will correspondingly reduce, this will lead to a reduce of GM’s market share. Besides, the auto price elasticity is 10% change in sales result from 5% change in price, which is relatively high within the manufactory industry, thus with one dollar change in selling price the market share will fluctuate a high portion subsequently. Additionally, Japanese auto companies derives around 50% of their profit from the US market. And with one yen depreciation against the US dollar, Japanese auto firms will gain a $400 million operating profit from the US market.
3. How would you go from the information in the case about competitive interactions with Japanese manufacturers to a value exposure for GM?
Assume the yen depreciates 20% against the U.S. dollar and trace the effects of that move all the way to GM’s market value.
4. What other methods might allow you to assess the competitive exposures of GM, specifically, or other firms generally? How would you implement such a method?
First we suggest to calculate the total net exposure of following factors: financial exposure, investment exposure and outstanding debt. Afterwards, the competitive exposure figure is the product of percentage change of yen level (depreciation or