The Wall Street Journal, October 10, 2012
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SHANGHAI—China's territorial spat with Japan is taking a toll on the world's No. 1 auto market, leading to its first monthly sales slump in nine months and adding to industrywide pressures that include a slowing Chinese economy and a surfeit of car factories.
Associated PressSales at Chinese auto makers could take a hit from excess production capacity. Above, workers assemble cars at the factory of BAIC Motor Corporation in Zhuzhou.
China's semi-official auto-industry association said Wednesday that sales of passenger cars in China fell 0.3% in September to 1.32 million vehicles compared with a year earlier, a drop it blamed on Chinese consumers angry over Japanese claims to a group of uninhabited islands in the East China Sea.
"If Japan wants economic growth, it has to maintain good relations with other Asian countries like China and South Korea," said Dong Yang, the general secretary of the China Association of Automobile Manufacturers, at a Wednesday briefing. He cited a "long-term accumulation" of resentment among consumers.
Sales of Japanese brands fell sharply, according to the association's data, which came a day after major Japanese auto makers reported their individual September China sales figures. Sales of Japanese passenger vehicles in September totaled 160,000 vehicles, down 30% from August, it said, while their share of sales declined to 13.2% from 18.62%.
Previously, Toyota Motor Corp. 7203.TO +1.29% said September vehicle sales fell 49% from a year earlier, while Nissan Motor Co. 7201.TO +1.88% said sales fell 35% and Honda Motor Co. 7267.TO +1.37% said sales fell 41%.
Foreign as well as domestic companies picked up sales the Japanese auto makers lost, the data showed. But the overall sales slump suggested many Chinese consumers held back on purchases, in a market where more than 80% of purchases are from first-time buyers who can take as many as 15 months to settle on a model.
"It's not like buying soap," said Janet Lewis, analyst with Macquarie Capital Securities Ltd. in Hong Kong. "Consumers won't immediately switch to another brand if one suddenly becomes undesirable or unavailable."
That could be good news for Japanese auto makers who are counting on Chinese consumers to come back, as they did after similar bouts of diplomatic tension in 2005 and 2010. At the same time, it could add to near-term pressures in a market that once grew by double digits annually and has become a key profit center for global heavyweights such as General Motors Co. GM -0.75% and Volkswagen VOW3.XE +1.82% AG.
Scott Laprise, steel and autos analyst with CLSA China, cited the potential for falling demand amid poor sentiment on China's economic prospects. He estimated dealers were holding two to three months of inventory this year compared with one month last year. Mr. Laprise estimates full-year growth in auto shipments of about 3% and real end-user demand to be even lower. Other analysts forecast higher growth such as Macquarie's 6.4%.
Excess production capacity also looms on the horizon of China's car industry, especially for Chinese brands.
"Their plant-capacity expansion programs far exceed their own growth in the market," said Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former Chrysler executive. "They are going to be sitting on a lot of excess capacity that is going to make pricing and profitability much more problematic in the future."
Mr. Russo and others still see long-term growth in China, especially for foreign brands and luxury brands, which enjoy a strong reputation among China's status-conscious car buyers. Yuan Qingwei, a sales consultant for a BMW AG BMW.XE -0.48% dealership in Beijing, said his dealership sold eight cars one day this week alone. "Now we can sell almost 200 cars per month," he said. "We estimated that total sales this year may reach 2,300."
Chinese officials also might face pressure to rekindle sales of Japanese brands from local auto makers that make Japanese cars through joint ventures, as well as local officials in their areas worried about growth. Mr. Dong, of the China auto association, cited local media reports that policy makers could soon offer subsidies for rural car buyers to help pick up the market, though he didn't offer details.
"Some Chinese car makers who have joint ventures with Japanese auto makers told me that they respect the choice of some customers not to buy Japanese cars," Mr. Dong said.
Domestic brands, which have taken hits in recent months as economic growth has slowed, won an unexpected gain from the Japanese slump. Sales rose 27% in September from August to 561,900 vehicles. U.S. auto makers' sales rose 12% to 168,200, while German auto sales fell slightly to 253,700.
Also on Wednesday, Ford Motor Co. F +1.70% said it sold 59,570 vehicles in the country in September, up 35% from a year earlier.
GM said Tuesday that it sold 244,266 vehicles in China in September, up 1.7% from a year earlier.
—Yajun Zhang and Kersten Zhang in Beijing contributed to this article.
"If Japan wants economic growth, it has to maintain good relations with other Asian countries like China and South Korea," said Dong Yang, the general secretary of the China Association of Automobile Manufacturers, at a Wednesday briefing. He cited a "long-term accumulation" of resentment among consumers.
Sales of Japanese brands fell sharply, according to the association's data, which came a day after major Japanese auto makers reported their individual September China sales figures. Sales of Japanese passenger vehicles in September totaled 160,000 vehicles, down 30% from August, it said, while their share of sales declined to 13.2% from 18.62%.
Previously, Toyota Motor Corp. 7203.TO +1.29% said September vehicle sales fell 49% from a year earlier, while Nissan Motor Co. 7201.TO +1.88% said sales fell 35% and Honda Motor Co. 7267.TO +1.37% said sales fell 41%.
Foreign as well as domestic companies picked up sales the Japanese auto makers lost, the data showed. But the overall sales slump suggested many Chinese consumers held back on purchases, in a market where more than 80% of purchases are from first-time buyers who can take as many as 15 months to settle on a model.
"It's not like buying soap," said Janet Lewis, analyst with Macquarie Capital Securities Ltd. in Hong Kong. "Consumers won't immediately switch to another brand if one suddenly becomes undesirable or unavailable."
That could be good news for Japanese auto makers who are counting on Chinese consumers to come back, as they did after similar bouts of diplomatic tension in 2005 and 2010. At the same time, it could add to near-term pressures in a market that once grew by double digits annually and has become a key profit center for global heavyweights such as General Motors Co. GM -0.75% and Volkswagen VOW3.XE +1.82% AG.
Scott Laprise, steel and autos analyst with CLSA China, cited the potential for falling demand amid poor sentiment on China's economic prospects. He estimated dealers were holding two to three months of inventory this year compared with one month last year. Mr. Laprise estimates full-year growth in auto shipments of about 3% and real end-user demand to be even lower. Other analysts forecast higher growth such as Macquarie's 6.4%.
Excess production capacity also looms on the horizon of China's car industry, especially for Chinese brands.
"Their plant-capacity expansion programs far exceed their own growth in the market," said Bill Russo, founder and president of auto consulting firm Synergistics Ltd. and a former Chrysler executive. "They are going to be sitting on a lot of excess capacity that is going to make pricing and profitability much more problematic in the future."
Mr. Russo and others still see long-term growth in China, especially for foreign brands and luxury brands, which enjoy a strong reputation among China's status-conscious car buyers. Yuan Qingwei, a sales consultant for a BMW AG BMW.XE -0.48% dealership in Beijing, said his dealership sold eight cars one day this week alone. "Now we can sell almost 200 cars per month," he said. "We estimated that total sales this year may reach 2,300."
Chinese officials also might face pressure to rekindle sales of Japanese brands from local auto makers that make Japanese cars through joint ventures, as well as local officials in their areas worried about growth. Mr. Dong, of the China auto association, cited local media reports that policy makers could soon offer subsidies for rural car buyers to help pick up the market, though he didn't offer details.
"Some Chinese car makers who have joint ventures with Japanese auto makers told me that they respect the choice of some customers not to buy Japanese cars," Mr. Dong said.
Domestic brands, which have taken hits in recent months as economic growth has slowed, won an unexpected gain from the Japanese slump. Sales rose 27% in September from August to 561,900 vehicles. U.S. auto makers' sales rose 12% to 168,200, while German auto sales fell slightly to 253,700.
Also on Wednesday, Ford Motor Co. F +1.70% said it sold 59,570 vehicles in the country in September, up 35% from a year earlier.
GM said Tuesday that it sold 244,266 vehicles in China in September, up 1.7% from a year earlier.
—Yajun Zhang and Kersten Zhang in Beijing contributed to this article.
A version of this article appeared October 11, 2012, on page B3 in the U.S. edition of The Wall Street Journal, with the headline: Japan Spat Hurts China Car Sales.
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