5 Oct, 2012

Japanese Carmakers in China Feel the Pinch of Geopolitical Island Dispute

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Beijing, September 29, 2012 (Global Times) – Japanese automaker Toyota Motor Corp on Monday resumed its production at all of its nine factories in China that had been halted since September 18, despite the ongoing territorial dispute between China and Japan over the Diaoyu Islands.

“The situation is developing, and there might be changes [regarding the resumption] … I will have to keep in touch with the factories,” Ma Chunping, public relations director at FAW Toyota Motor Sales Co, one of Toyota’s joint ventures in China, told the Global Times on Tuesday.

“The halt in production has definitely had an impact on us, but it is not yet clear how many units were affected,” Ma said.

Japanese carmakers Honda Motors, Nissan and Mazda also restarted or partially restarted their operations in China, after the massive anti-Japanese protests across the country subsided last week.

Huge losses

Japanese companies were in a rush to resume output, since a brief idling of plants in one of the world’s fastest-growing markets had incurred hefty losses on them, according to analysts.

Toyota, Honda, Nissan and Mazda may have lost 14,950 units of vehicle output due to production suspensions between September 17 and 21, during the height of the Chinese demonstrations against the Japanese nationalization of the disputed islands in the East China Sea, according to an estimate sent to the Global Times by US consulting firm IHS Automotive on Tuesday.

That would translate to lost revenues of about 1.5 billion yuan ($238 million), based on an average sticker price of 100,000 yuan for a Japanese car in China.

Of these companies, Nissan was hit the hardest.

“Nissan has the highest exposure among the Japanese auto companies rated by Fitch, with China absorbing about 26 percent of its global car sales during the 2012 fiscal year,” US credit rating agency Fitch Credit Ratings said in a research note on September 18.

“Honda’s and Toyota’s exposure to China was also significant at about 20 percent and 10 percent of their respective total global unit sales during the same period,” it noted.

Nissan and Honda did not reply to e-mails seeking comments sent by the Global Times by press time.

Because of the recent deterioration in bilateral relations, China on Monday postponed a meeting with a Japanese delegation to observe the 40th anniversary of the normalization of China-Japan diplomatic relations.

“The underlying territorial dispute remains unresolved, so anti-Japanese sentiment in China will stay strong and many Chinese consumers will avoid Japanese brands,” Yang Jian, managing editor of Automotive News China, wrote in a commentary on September 21.

“That is not good news for Japanese automakers, which only recently have recovered from last year’s earthquake in Japan.”

Guangzhou Automobile Group, which owns two joint ventures with Toyota and Honda respectively and relies heavily on sales revenues from the joint ventures, has seen 14.8 billion yuan of its market capitalization vaporize since August, according to numbers from the Shanghai Stock Exchange.

The company’s stock closed down 1.9 percent at 5.14 yuan a share on Tuesday in Shanghai. It dropped by 31 percent from the closing price of 7.44 yuan on August 1. Its valuation stood at 33.1 billion yuan as of Tuesday.

The company also delayed a Friday launch of the first model it is jointly producing with Mitsubishi Motors in Changsha, Hunan Province, to October, “because of the serious anti-Japanese situation in Changsha,” China Economic Times reported Tuesday, citing an unnamed source with the China-Japan joint venture.

Some Japanese brand vehicles and Japanese stores were smashed during protests in Changsha last week, the newspaper reported.

Many dealers of the Japanese brands were also told by the automakers to stop any high-profile promotions and not to participate in local auto shows, the 21st Century Business Herald reported Tuesday.

Competitors advance

China was projected to sell 19.5 million units of light vehicles in 2012, and would contribute to 90 percent of the growth in Asia in 2013, which was expected to come in at nearly 37 million units, LMC Automotive, a leading automotive forecasts and intelligence supplier, said in a press release in August.

Anticipating such phenomenal growth, automakers have been actively expanding their output and research capacities in the country, including Japanese companies.

However, the current setback has proved to be detrimental to the Japanese carmakers, and, in such a competitive market, Japan’s loss is others’ gain.

Japanese carmakers’ archrival BMW AG has been making strides in China.

Brilliance China Automotive Holdings, BMW’s Chinese partner listed in Hong Kong, recorded an unaudited profit attributable to equity holders of 1.3 billion yuan for the first half of 2012, jumping by 41.5 percent year-on-year, the company said in its interim report on August 29.

The company’s profit performance beat analysts’ expectations. One of the reasons is that Brilliance China Automotive’s Shenyang factory, which is dedicated to making the BMW 5 Series, has been over-utilized, according to Australian investment bank Macquarie Capital Securities.

From May through August, 5 Series production has averaged 9,869 units per month in the factory, as opposed to an official annual capacity of 100,000 units, Macquarie said in a research report on September 20.

Although the Brilliance-BMW Automotive joint venture [BBA] is facing higher costs, … its higher volumes are enabling it to negotiate lower procurement costs,” Macquarie noted.

Luxury brand Tata Motors’ Jaguar Land Rover division recently got a verbal approval from the Chinese National Development and Reform Commission to go ahead with forming a joint venture with Chery Automobile Co in Changshu, Jiangsu Province, the Economic Observer reported Tuesday, citing sources close to both firms.

It took only four months for the joint venture to get the go-ahead, a record in five years, the report said.

The US automaker General Motors also gained from the Japanese losses. It announced Monday in Shanghai that GM and its joint ventures sold their two millionth vehicle in China this year on September 21.

“This is the third time in GM’s history in China and the earliest ever that it sold 2 million vehicles in a calendar year,” the company said in a press release.

On September 22, GM and its partners opened a 5.67-square-kilometer, 1.6 billion yuan proving ground in Guangde county, Anhui Province, the largest of its kind in China.

Meanwhile, Toyota will cut production of its premium Lexus vehicle by about 20 percent as anti-Japan protests hit sales in China, Reuters reported Tuesday.

“Toyota’s sales fell about 30 percent after some of its stores in China were damaged during violent demonstrations,” the Nikkei said.

Toyo Tire & Rubber, a supplier to Toyota Motors, said it was mulling a scale-back of expansion in China, as the political dispute hurt businesses, Bloomberg News reported Tuesday, citing CEO Kenji Nakakura.