By on September 26, 2012

The row between China and Japan over a few rocks in the East China Sea, alternately called Senkaku and Diaoyu islands, is threatening to derail production and sales plans of Japanese automakers. Many in the industry say that “Chinese consumers are unlikely to return to Japanese cars anytime soon,” as The Nikkei [sub] says. Already, Japanese automakers have curtailed production in and exports to China. The problem  may not be a temporary one.

Chinese customers hold foreign brands in much higher regard than Chinese. Conspicuous consumption of foreign products is a signal of achievement. Contrary to lore that the Chinese prefer Buicks because a Chinese Emperor did so, the Chinese long preferred Japanese cars, a fact that clashes with clichés. Until recently, Japanese brands outsold all others in China, now they are in place two after being overtaken by the Germans.

That was before the Chinese riots over the rocks in the sea, that led to the smashing of Japanese-branded cars, torching of dealerships that sold them and attacks at factories that made them. Suddenly, ownership of a Japanese car means the worst of the worst in China: Loss of face.

Japanese automakers already are adjusting their output.

Toyota has decided to keep its Guangzhou plant, a  joint venture with Guangzhou Auto, closed for an additional four days until it will be shut down for eight days for the October holidays, says the Nikkei. The plant makes the Camry and the Highlander. When it will reopen, the plant will go from two shifts to one.

According to the same report, Nissan will suspend production three days earlier than scheduled at three Chinese manufacturing facilities. Honda is considering going to one shift at its Guangzhou factory.

Reports by the Yomiuri Shimbun that Toyota did stop auto exports from Japan to China were discounted by a Toyota spokeswoman in Tokyo. “We are adjusting output, we did not stop it,” the spokesperson said.

While these outbursts in China tend to blow over faster than they started, market observers worry that Japanese brands have received a lasting and hurting dent in China. “When choosing between a Japanese or a German-branded car, both equal in terms of value, why would you buy a Japanese car when you see residents smashing them in such anti-Japan protests?” Song Jian, president of Tsinghua Institute for Automotive Technology, told Bloomberg. “It would definitely weigh on your buying decision.”

Koji Endo, auto analyst at Advanced Research Jaoan sees sales of Japanese brands go down by 20 to 30 percent,” Reuters reports. “The last time we had protests like this in 2010, the effects only lasted about a month, but I think this time is going to be different. This is going to have a serious impact,” Endo said. Smaller anti-Japanese protest in 2005 and 2010 were mostly for foreign consumption and either rarely noticed or mostly ignored  by the Chinese population. Not so this time around.

Numerically, Nissan has the highest exposure in China with 1.25 million sales in 2011, and plans for much more in this and future years. Goldman Sachs figures that Nissan generates about 30 percent of its profit in China, compared with 17 percent at Toyota and 15 percent at Honda. Spokespeople at Nissan did not want to go on record, citing the sensitivity of the matter, but expressed hopes that business interests prevail.

Ironically, it is the Chinese government that is immediately hurt by these developments. Nearly all joint venture partners of Japanese carmakers are Chinese State-Owned Enterprises. A sudden shift in customer perception exacerbates problems with a slowing market. However, most of them have joint venture partners from other countries. In the case of Toyota, joint venture ;partner FAW is also a big partner of Volkswagen, and its Guangzhou partner signed on with Fiat. Honda’s and Nissan’s partner Dongfeng has JVs with Kia, and PSA Peugeot-Citroen. But it would not be as easy as making Volkswagens where one made Toyotas.

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31 Comments on “China Spells Big Trouble For Japanese Automakers...”


  • avatar
    spw

    Definetly not easy for them in China… Good for rest of the manufacturers, as little known fact is that Japanese hold most of the Chinese market.

  • avatar
    Ron B.

    I read a lot more into all this. China may be a big economy but recent events such as the new incoming leader disappearing for a few days show that it’s basically rotten to the core. The Japanese sense this I feel and are being prudent and shutting down their plants to keep their capital safe. The Chinese are very good at organizing group “protests” such as shown on the news lately but they have no real substance in reality ,these are after all a very controlled people who are taught their entire lives to think as group.

    • 0 avatar
      L'avventura

      These protests were well coordinated, government officials and plain-clothed police men were also covertly mixed in. In addition, buses and packed-lunches were also provided by the Communist Party to-and-from protest locations.

      Reports are that Japanese companies shut their factories in coordination with the Chinese government.

      As far as damage. Japanese companies are insured against protest damage.

      Quote WantChina: “Japanese businesses with investments in China have signed special agreements with their insurance companies to includes damage sustained through such disturbances.”

      There have even been cases where the Chinese government have been intentionally protecting ‘expensive’ Japanese assets because they fear the bill they would get later.

      This is the case for Shanghai’s Japanese embassy, which uses expensive tiles for their exterior. During the 2010 anti-Japanese riots, the city of Shanghai was stuck with a $125,000 repair bill. This time around, the protesters aren’t allowed to attack that particularly expensive wall.

      http://blogs.wsj.com/chinarealtime/2012/09/19/amid-protests-shanghai-protects-japanese-consulate-it-paid-to-fix/

  • avatar
    dcars

    “Don’t let your past hurt your future.” In Japan’s case they have never fully apologized for their miss deeds in world War two and it’s hurting their future generations.

    • 0 avatar
      philadlj

      “Conflict and oppression will endure for so long as some people refuse to do unto others as we would have them do unto us.” – President Barack Obama, addressing the UN last Wednesday

    • 0 avatar
      Synchromesh

      The Germans didn’t apologize much either and yet people buy BMWs, MB, VW and other junk that they produce.

      • 0 avatar
        geozinger

        “The Germans didn’t apologize much either…”

        What?

        The Germans (nation) have been apologizing for WWII for almost 70 years now. They were the only nation to have paid ALL of their war reparations.

        However, as we found out a few weeks back where the Soviets blamed one of their massacres on the Nazis during WWII, no one apologized to the Germans…

      • 0 avatar
        tatracitroensaab

        Lol are you kidding? German guilt is why they don’t completely take over the EU. WWII is an incredibly sensitive subject for the Germans because they’re so ashamed of what happened. It’s the Russians who have never really apologized, but their atrocities were so overshadowed by everything else that tey don’t need to, plus no one expects them to. The Japanese have distanced themselves from their past and are not very proud of it, but they’ve still never really apologized in the same way as the Germans, which is probably why the protests are still relevant. The japanese carmakers are going to har to bow very, very deeply.

      • 0 avatar
        onyxtape

        ” The Japanese have distanced themselves from their past and are not very proud of it”

        No, they haven’t – at least not from the standpoint of a flat-out denial of responsibility. Their standardized schoolbooks still claim themselves as victims of the war, with trivial or no mention of committed atrocities well known in the rest of the world. And not to mention that they still enshrine convicted war criminals in shrines like Yasukuni – over a thousand of them, including Tojo. Imagine the Germans having a cathedral enshrining Goebbels. In the year 2012.

        So it really doesn’t take much for the Chinese government to rile up the crowds. Even overseas Chinese of that generation or so, most of whom generations removed from any government indoctrination, are just as emotional about this sort of stuff.

    • 0 avatar
      L'avventura

      You need to check your history. Japan has apologized repeatedly (and profusely) over their actions in WW2 (and have paid compensation):

      Wikipedia has a massive list of Japan’s apologies:
      http://en.wikipedia.org/wiki/List_of_war_apology_statements_issued_by_Japan

      For a lot of Asian countries, like China, the entirety of their legitimacy and their beginnings comes from fighting the Japanese.

      Its part of the Communist Party’s “Patriotic Education” program to teach anti-Japanese sentiment and fear the Japanese military(even today). Hong Kong right now is trying to fight CCP’s attempts to have ‘patriotic education’ classes taught there. Its a convenient political-enemy to unify the masses against, and to distract them from real social issues that are occurring internally.

      • 0 avatar
        onyxtape

        And yet in the same article you cited, it states that 80 Japanese lawmakers paid a state visit to the infamous Yasukuni shrine just 6 years ago – housing the likes of Tojo.

        Words versus action, my friend – it certainly doesn’t seem like they’re very much apologetic about anything. It’s like having the German chancellor apologizing for WW2 atrocities, then turning around and having a bierfest at Dachau with 80 members of Bundestag while praising the deeds of Goring.

      • 0 avatar
        L'avventura

        @ Onyxtape

        There are ultra-conservatives within the Japanese government. There are neo-Nazis in Germany and US. Its not representative of the government as a whole. Which has been peaceful since the end of WW2 due to their pacifist constitution. So actions do speak louder than words.

        As for the temple, there is difference is how Yasukuni is seen by the Japanese and other Asians. Yasukuni is a temple for the war dead. Houses millions of them, and the war-criminals are but a few in a million. Most Japanese lawmakers aren’t paying respects to those war criminals, but rather the millions of their countryman who died at war throughout history (its akin to a Japanese Memorial Day).

        Obviously, this is not how the Chinese/Koreans see it. Japanese should not be paying respect to their war dead, especially those who have committed atrocities against them. Which is why no prime minister since Koizumi has gone there even as the Japanese view it their right to celebrate their memorial day.

        But the Japanese government is by any definition peaceful. This is in stark comparison with China, who has invaded multiple countries after the war, they’ve been at war with India, fought with Vietnam, invaded Tibet, and most recently, in April, sent troop to threaten islands in the Phillipines over another dispute involving oil.

      • 0 avatar
        onyxtape

        ” Which has been peaceful since the end of WW2 due to their pacifist constitution. So actions do speak louder than words.”…

        They were, after all, disarmed by the victors. So it’s kind of hard to act otherwise…

        “As for the temple, there is difference is how Yasukuni is seen by the Japanese and other Asians…”

        Double standards. Try to bury a convicted war criminal in a German war memorial site and see how quiet the international community remains, regardless of the “cultural justification.” It’ll just be one amongst many non-war criminals, right? Somehow I don’t think the State of Israel will take your “law of averages” argument very lightly.

        “This is in stark comparison with China…”

        Two wrongs don’t make a right. China treats others badly, so their people should lose their right to demand justice?

        Of course there’s a clear distinction between the actions of the government and the actions of its people. But when the government is elected directly by the people, the actions of the government do reflect the wants and wishes of a nation as a whole to outsiders – whether intentionally or not.

      • 0 avatar
        L'avventura

        @onyxtape

        There are no two wrongs here. Only China has been aggressive since WW2.

        Japan has kept true to their pacifist constitution. When they aided US troops in Iraq, they didn’t even carry firearms.

        China claims the entire South China Seas, in many cases they claim waters going upto the shoreline of countries of South East Asian countries. They occupy Tibet, threatening the occupation of Taiwan, they’ve been in dozens of military conflicts.

        Also, the bodies of War Criminals aren’t “buried” at Yasukuni. Their souls are ‘enshrined’ there, meaning they were part of some silly ritual where they throw some ashes around. Tojo for instance has his remains buried at Zōshigaya Cemetery.

        BTW, the Japanese emperor has not visited the temple since those war criminals were “enshrined”.

        More importantly, China has always protested the Yasukuni shrine even before any war criminals were ‘enshrined’ there. China’s protest is that Japan should NOT pay respects to their war dead.

  • avatar
    stars9texashockey

    A point that I’ve never seen addressed regarding the German marques in China: How do middle class Chinese afford the maintenance on them?

    • 0 avatar
      aristurtle

      “Middle class” might be a bit of a misnomer; anyone capable of affording a new BMW in China is capable of affording a hired driver.

      Unless you’re talking about the 2nd generation Jetta, still built there under license? Those things are fairly easy to keep running.

    • 0 avatar
      silverkris

      Well, VW has been in China for a long, long time, and the garden variety Santanas,Passats, and Jettas are relatively easy to fix/service. I’d imagine labor rates for repair and service are very reasonable there.

  • avatar
    challenger2012

    Protests? Tea? This is the land of Tea, now they have the Tea Party, Rebels without a clue. Let’s riot over rocks. I have one question, are the workers at the closed plants paid their wages during this down time? Any social safety net?

    • 0 avatar
      dejal1

      Those rocks are considered sovereign land and the territorial waters for X miles from those rocks are also considered part of the country.

      Supposedly there may be a lot of oil and gas within those territorial waters.

      Middle East oil ships to Japan through those waters and the Japanese would like to be able to have the ships not have to take the long way around further out to sea. I’m sure the S. Koreans wouldn’t be too happy either if China took over.

  • avatar
    Volt 230

    Folks remember we’re dealing with a Communist, totalitarian country with very little personal freedoms.

  • avatar
    Pastor Glenn

    A note to Mr. Toyoda: Perhaps you should consider doing something completely mad mad mad worldish. How about talking with your Chinese JV’s and setting up a new company in Zug, Switzerland (how about calling it Adler Auto AG), 24% each owned by FAW and Guangzhou, 2% owned by Durkopp Adler (given to them for the rights to use the Adler auto name) and 50% owned by Lexus Europe of Brussels, with control over the JV’s in China. Rename the Guangzhou Toyota Camry the Guanzhou Adler Favorit; rename the FAW Toyota Vitz the FAW Adler Trumpf Junior and rename the Corolla the FAW Adler Trumpf, and rename the Crown the FAW Adler Diplomat. The Prius could be renamed the Maikafer. Even consider rebadging Lexus cars sold in Germany, Austria, Switzerland and Belgium as Adler.

    As for Nissan, perhaps using the Samsung-Renault name would be best going forward. Or perhaps the Yulon name.

    Honda? Perhaps go to BMW with begging bowl in hand and purchase the rights to the old British Riley marque, set up a Riley Motors Ltd subsidiary of Honda UK, and hand the non-Chinese JV ownership to that entity – use the Riley brand in China and as an upscale version of some cars in Britain only (instead of Acura).

    The other Japanese players could go away or perhaps Suzuki could hand over their JV biz to Indian partner, Maruti. Mitsubishi and Suzuki should merge in any case – worldwide, in order to survive.

    Either that or the Japanese could simply pull all their designs, tools, machinery, everything out of China and send it to India or some other nations, and start churning out cars for the eager buyers elsehwere.

    It’s not like Japanese brands have lost their allure to other buyers. Just the Chinese – and yep, the Chinese are being played by their government. NO doubt about it.

  • avatar
    L'avventura

    Its more than just getting your car smashed up. Its a legitimate concern for you own personal safety.

    During this last protest, a Chinese man driving a Toyota Corolla has beaten half-to-death by anti-Japanese mobs.

    http://shanghaiist.com/2012/09/24/xian_car_owner_attacked_in_his_head.php

    Quote WSJ:
    “The case of a 51-year-old Chinese man Li Jianli who, according to the state-run Beijing Youth Daily, was beaten so brutally by an anti-Japanese mob for driving a Japanese car that he’s now partially paralyzed and can barely utter simple words like “thank you” and “hungry.””

    • 0 avatar
      L'avventura

      Forgot to put the Wall Street Journal link I quoted:
      http://blogs.wsj.com/chinarealtime/2012/09/23/soul-searching-in-china-over-man-beaten-senseless-by-anti-japanese-protestors/?mod=WSJBlog

  • avatar
    icemilkcoffee

    baaah. I give it one month tops before everything goes back to the way it was. These government sponsored protests are a mile wide and a foot deep. Its not going to have any more lasting effects than all the previous anti-japanese protests (and there have been quite a few of them)

  • avatar
    stuntmonkey

    So it was and so it shall be. The circle of life continues.

    They’re now going through the Japan bashing phase that the US went through in the 80’s. Next comes whatever the equivalent of China bashing is for the Chinese. High probability it will be the U.S.

  • avatar
    silverkris

    “Even though I am American I somehow managed to read the excerpts of Ahmadinejad’s latest tirade at the UN and drawing my own conclusions was greatly, if predictably, appalled.”

    I think Americans overestimate Ahmadinejad’s actual standing in Iranian politics. He makes a lot of noise, but domestically he actually doesn’t have as much clout as one might think. The real power in Iran lies with the mullahs (ayatollahs). Also, he isn’t all that popular; in the last election, his re-election victory was widely believed to be rigged and there were violent protests all over the results of the elections that had to be put down with police action. Ahmadinejad isn’t running again, so he will pass from the scene soon.


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