Japan’s Car Makers Struggle in China

April 2, 2013, 9:47 a.m. ET

Japan’s Car Makers Struggle in China


An overturned Honda police car takes a beating at an anti-Japan protest in Shenzhen last August; lingering bad feelings are still hurting Japanese car makers’ sales in China.

Japan’s three major auto makers suffered continued sales setbacks in China last month, adding urgency to efforts to reignite sales in the vast but increasingly competitive market. Toyota Motor Corp., 7203.TO +1.46% Nissan Motor Co. 7201.TO +1.24% and Honda Motor Co. 7267.TO +1.99% reported year-over-year declines in March as they grapple with a territorial dispute between China and Japan over a group of rocky islands in the East China Sea, a row that inflamed anti-Japanese sentiment in China and caused boycotts and general wariness of Japanese car brands.Nissan said on Tuesday it sold about 110,000 cars in China last month, down 17% from a year earlier. By comparison, its China sales dropped by 14% in the first two months of the year combined. Also on Tuesday, Honda posted a 6.6% fall in March to 61,108 vehicles, compared with a 4% drop in the first two months.

Toyota, Japan’s largest car manufacturer by production, said its China sales slid 12% from a year earlier to 75,900 cars in March, less severe than the 13% drop in combined sales in the first two months of the year compared with a year earlier.

Nissan’s Chinese joint venture said it expects new model launches, a revamped dealer strategy and a concerted reach into China’s heartland to revive its fortunes in the world’s largest auto market. Fumiaki Matsumoto, managing director of Nissan’s passenger car venture with China’s Dongfeng Motor Co., attributed part of the March decline to the arrival of two new models, the new Teana premium sedan and the new Livina, which Nissan will launch later this month. Production and sales of older models virtually stop in the run up to new product launches, the company said.

“I am not disappointed,” he said. “This is in line with our plan-even a little better.”

Honda spokesman Zhu Linjie said the auto maker faced a tough comparison because last year it launched a new version of the CR-V model, boosting March sales. More new models coming this year will underpin sales, he said.

Japanese auto makers continued to post falling sales in China in March due to the lingering territorial dispute between the two nations. “The diplomatic relationship between China and Japan still dominates the sales performance of Japanese cars. In the face of uncertainties, people are still shying away from Japanese brands,” said John Zeng, a director at consulting firm LMC Automotive in Shanghai.

But Japanese car makers are subject to increasingly fierce competition from their western peers, analysts said. In the Chinese sport-utility-market, in which Japanese car makers had a roughly 70% share, more and more western brands such asVolkswagen AG’s VOW3.XE -0.92% Tiguan, General Motors Co.’s GM -0.47%Chevrolet and Ford Motor Co.’s F -2.54% Maverick are joining the competition, Mr. Zeng said.

“In the sedan segment, they are facing tough challenges from German luxury brands. In a bid to cater Chinese consumers, the Germans are making their cars longer and bigger,” he said. Also, prices of German luxury cars are becoming more competitive after discounts.

For example, Mr. Zeng said some entry-level Mercedes-Benz models made by Germany’s Daimler AG DAI.XE -1.17% have dropped to around 230,000 yuan ($37,100). By contrast, Nissan’s new Teana has a price tag of between 177,000 yuan and 244,000 yuan.

Lin Huaibin, an analyst at IHS said Japanese car makers are also still dealing with previous mistakes in their Chinese strategy.

“Compared with its U.S. and German competitors, Japanese companies have paid less attention to Chinese consumers and moved much slower in launching new products in recent years,” he said.

“What they can do now is to take measures to prevent a further slump in sales. However, it is almost unlikely for the Japanese to take the lead in China again,” Mr. Lin added.

Data from the China Association of Automobile Manufacturers show that in the January-February period, Japanese auto makers had a 12.54% share of China’s passenger vehicle market, compared with a 16.4% share in 2012 and 19.4% in 2011.

Japanese companies have taken a series of measures in recent months to win back Chinese consumers. For example, Nissan launched a safety-assurance program in which any cost arising from damage or injury as a result of anti-Japan sentiment is paid for by Dongfeng Nissan.

Macquarie Securities analyst Janet Lewis said a strong performance by the new Teana and future new models will be critical for Dongfeng Nissan to regain its position in the market. “New product will be critical for Dongfeng Nissan to claw back lost market share,” she said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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