Japanese carmakers rue lost lead in China

The Financial Times, November 21, 2013

Troubled times at Toyota: sales fell precipitously last year in China
in the wake of a high-profile diplomatic dispute and strikes at car plants over pay

By Tom Mitchell in Guangzhou and Jennifer Thompson in Tokyo

Toyota and Honda picked a bad time to take their foot off the accelerator in China.

As the global car market went into a financial crisis-induced tailspin in 2008, Chinese demand kept expanding, accounting for one-third of the industry’s total growth over the ensuing five years.

Last year, annual sales of passenger cars and minivans remained 9 and 14 per cent below their pre-crisis peaks in the US and western Europe respectively, and recovered to 2007 levels in Japan, according to automotive consultancy AlixPartners. Meanwhile, sales in China’s market more than doubled to 18.6m, making it the world’s largest.

“The downturn didn’t really happen in China,” says Bill Russo, a former US auto executive and Beijing-based industry consultant. “China’s share of the global market rose significantly in 2009 and 2010.”

Toyota and Honda missed the party. Together with Nissan, the “big three” Japanese auto companies’ combined share of the China market crashed from more than one-quarter in 2008 to just 15 per cent in the first half.

Toyota and Honda at least have some interesting excuses. Japanese car companies make for easy targets in China, especially at times of political tension between Asia’s two largest economies.

Chinese nationalist passions boiled over in September last year, after the Japanese government purchased the disputed Senkaku Islands – known in China as the Diaoyu – from their private owner. Japanese car companies briefly halted production as angry crowds targeted their cars and dealerships.

Some Chinese drivers cleverly presented the mob with a moral dilemma – and saved their Japanese cars – by plastering the vehicles with stickers of Chinese flags and other patriotic symbols.

“We lost 50 per cent in sales immediately,” Carlos Ghosn, chief executive of Nissan, said as he delivered first-half results earlier this month. The carmaker is yet to regain the 7.7 per cent market share it enjoyed before the dispute.

Toyota’s vehicle sales also dropped rapidly, with many customers cancelling orders and shunning showrooms. It was forced to reduce production temporarily in some plants by as much as 60 per cent.

Japanese auto executives admit that the severity of the incident took them by surprise, given that previous geopolitical flare-ups had not seriously affected production. “Japanese carmakers always feel that [when it comes to] doing business in China we don’t stand on the same point as western carmakers,” says one industry insider. “We always have to overcome these past political problems.”

Ivo Naumann, AlixPartners’ Shanghai-based managing director, says: “The biggest problem [with these incidents] is on the dealer side. If sales decline or your windows get smashed every three or four years because of some stupid political issue, you ask whether you should continue.”

A series of industrial actions in 2010 that marked the beginning of the end of China’s cheap labour advantage also primarily affected Japanese car plants in southern China. The striking auto workers drew on lingering resentment over their country’s former wartime adversary.

Many analysts, however, do not accept that geopolitics has been the main reason for Toyota and Honda’s poor performance in China over recent years. They point instead to inadequate plant expansions, low levels of localisation and other strategic errors that were made before Sino-Japanese relations hit their latest nadir.

After last year’s turmoil, Toyota’s sales this September rose 45 per cent year on year, according to market research consultancy LMC Automotive, which collates data for every player in the market, while Honda and Nissan’s China business doubled.

But all three companies’ sales over the first three quarters of 2013 remained largely flat or slightly down versus the same period last year, even as the overall market grew a robust 15 per cent.

“The Japanese took a negative view of the market,” says Mr Naumann. “They simply ran out of capacity. There was demand but they just couldn’t supply it.” Toyota in particular, he adds, badly underestimated how fast the market would grow.

Toyota enjoyed a bumper 2008 in China, attaining a 10 per cent market share and becoming the country’s second-best-selling brand after Volkswagen.

But as the global financial crisis took hold, it froze development of a major plant in Changchun, a northeastern industrial centre, and delayed approval for capacity increases at other facilities. The Changchun plant, originally slated to have begun manufacturing in 2010, finally opened last year with an annual capacity of 100,000 vehicles. “We never thought of [China] as an El Dorado,” one Toyota executive admits.

GM is now firmly entrenched in the number two slot.

Some analysts are optimistic that Toyota and Honda have learnt from their mistakes and can bounce back, although it will be a difficult task in what is now the most competitive national market in the history of the auto industry. More than 100 manufacturers are active in China including every major multinational car company.

“They will regain market share,” says Mr Naumann. “They are still formidable companies. They still have excellent cars.”

Tatsuo Yoshida, auto analyst at Barclays, also believes Japanese manufacturers are at last addressing their deficiencies in China after concerns about intellectual property protection had for years dissuaded them from developing more vehicles there. But he expects that the US will remain their key market.

Additional reporting by Henry Foy in London

Click here to read this article at FT.com

Lost Year for Toyota Dealer in China Underscores Japan Challenge

Bloomberg Business Week, September 11, 2013

The Toyota Motor Corp. logo is displayed on a vehicle in Beijing, China.

It took Wang Chongwei almost a year to rebuild his Toyota Motor Corp. (7203) dealership in Qingdao, China, after a mob protesting against Japan’s purchase of a group of disputed islands burnt down the showroom.

On opening day one humid Sunday morning last month, more than 100 local residents, some with toddlers in tow, showed up to play funfair games and watch svelte dancers performing South Korean pop star Psy’s new hit single “Gentleman.” That’s a stark contrast to the demonstrators last year, who also torched Wang’s other dealership by Honda Motor Co. (7267)

“I’m a patriot just like any other Chinese, but politics should be politics and business should be business,” Wang said in an interview at the showroom’s reopening. “Last year’s incident is unique and I don’t want to talk about it any more. I am fully confident in future sales.”

Wang said he’s targeting to sell the same number of cars at the reopened dealership -- about 100 cars a month -- illustrating how Japanese automakers are working to return to last year’s sales levels even as the likes of Ford Motor Co. and Hyundai Motor Co. pull ahead.

Intermittent bouts of tensions between Asia’s two largest economies also underscore the risks of a prolonged consumer backlash against Japanese auto brands, which have lost a fifth of their market share in the past year. Winning back the lost ground will involve increasing incentives that will pressure margins, according to consultancy Synergistics Ltd.

“Even if the Japanese recover, they will do so at great expense,” said Bill Russo, Beijing-based president of Synergistics. “That’s really going to affect their investment in this market going forward. They have to think where else in the world they can have profitable growth if they can’t get it in China.”

Disputed Islands

Nationwide protests erupted across China last September after Japan moved to purchase a group of disputed islands -- known as Senkaku in Japan and Diaoyu in China -- from their private owner one year ago yesterday.

Thousands of Japanese cars were vandalized and businesses attacked by mobs in the demonstrations. The ensuing consumer backlash sent Toyota and Honda to their first annual sales declines on record in the world’s largest vehicle market.

The dispute hasn’t blown over. Japan lodged a diplomatic protest to China after eight Chinese Coast Guard ships entered Japan-controlled waters on Sept. 10 near the island chain being claimed by both nations.

Sales Slump

According to Nissan Motor Co. (7201), the biggest Japanese carmaker in China by volume, its sales are down more than 6 percent in the country during the first eight months of this year, even as industrywide passenger-vehicle sales increased.

Toyota’s deliveries have declined 5.3 percent in the same period, while Honda slid 2.9 percent.

“In China, there are several issues, ranging from the political situation between the two countries, the slowdown of the Chinese economy and the products we sell in the market,” Toyota Executive Vice President Nobuyori Kodaira said Aug. 21. “Our aim is to carefully respond to what our Chinese customers want and to raise our efforts in meeting those needs.”

Toyota passed on Shanghai and Beijing and chose Dubai for one of its three new global Intersect by Lexus boutique stores, a key effort by the automaker to promote its upscale brand outside its biggest market of the U.S.

Asked whether the anti-Japanese sentiment played a part in that decision, Mark Templin, the brand’s vice president, said last month in an interview that the company wanted to be careful about the pace of expansion in China.

Slow Recovery

Honda said the political issue won’t affect its long-term plans in China and the automaker expects sales this year to surpass last year, according to Beijing-based spokeswoman Natsuno Asanuma. Nissan’s sales in China haven’t fully recovered, though it’s on track to achieve its plan this year, said Yoshiko Tsumagari, a spokeswoman for the Yokohama, Japan-based company.

Ford Motor Co., unencumbered by geopolitical baggage, has emerged as the biggest winner, benefiting from consumers seeking non-Japanese options and an expanded lineup of new models.

Deliveries at the Dearborn, Michigan-based automaker have jumped 50 percent in the first eight months of this year, driven by sales of its Focus compact and Kuga and EcoSport SUVs. The second-largest U.S. automaker last month introduced a revamped Mondeo mid-sized sedan aimed at Toyota’s Camry, Nissan’s Teana and Honda’s Accord.

Ford Benefits

“Ford’s success is due to their new product launches which suit the market well, but also because of the fall of the Japanese,” said Zhu Bin, an analyst with LMC Automotive in Shanghai. “They have many models that directly compete with the stronghold of the Japanese, such as the Mondeo sedan, Focus compact and Kuga SUV.”

General Motors Co. (GM:US) and Volkswagen AG (VOW) are also stepping up investments in China as both automakers forecast their sales will climb to 3 million vehicles in the country this year.

GM will invest $11 billion in China by 2016 and add four plants by 2015 that will boost capacity to about 5 million units. VW said in March that it will add seven car plants in the country, bringing the total to 19, and increase production capacity there to 4 million vehicles a year by 2018 from about 2.5 million currently.

Despite the headwinds, China remains too big a market to ignore and Japanese automakers should play to their strengths in fuel economy to win back customers, said Satoru Takada, an auto analyst at Toward the Infinite World Inc. in Tokyo.

Fuel Economy

That would mean wooing consumers like real-estate agent Lei Zhucheng, 43, who says tensions between the two countries aren’t a factor in his purchase decision.

“I look at the car’s quality rather than politics,” said Lei, who was checking out the Honda Jade wagon at the Chengdu auto show last month. “Honda cars are fuel-efficient. Their prices are reasonable and it’s good value.”

Back in Qingdao, Diao Zihui, marketing manager of the rebuilt Toyota dealership, said she wants to put the past behind her. The staff worked out of makeshift premises for months while the showroom was being rebuilt.

“It’s like a nightmare I hate to recall,” said Diao. “I shed a lot of tears. I hope this won’t repeat and China and Japan can be friendly.”

To contact the reporter on this story: Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Click here to read the article at www.businessweek.com

第一财经周刊-讴歌绕不开国产

China Business News, July 29, 2013

进入中国市场7年，本田公司旗下的高端品牌讴歌（Acura）始终没能打开局面。2012年在华总销量仅为2300辆，不及同为日系高端品牌的雷克萨斯6.4万辆的一个零头，与已经国产化的德系三大豪华车品牌比更是相距甚远。销量低迷使得不少经销商选择退网，其特约店数从2011年底的39家减少到目前的33家，比晚进入一年的英菲尼迪还少了一半。　

面对勉力支撑的经销商和日趋冷淡的消费者，讴歌需要一个好消息来让他们兴奋起来。

与广汽签订完关于2016年在广汽本田生产讴歌车型基本协议后的第二天，本田中国总经理仓石诚司就迫不及待地将这个好消息带给了经销商。在7月18日举行的讴歌半年度经销商大会上，他宣布将在3年内国产 Concept SUV-X。

这款概念车曾在今年4月的上海车展上作为全球首发亮相，但围绕具体在广本的哪处工厂投产以及计划的生产能力，双方都没有披露更详细的信息。广汽本田公关部对《第一财经周刊》表示，协议还处于母公司商讨阶段，有关生产及是否沿用目前的销售渠道等细节信息尚不明确。

至于目前讴歌中国事业部的职能是否会伴随国产化进行相应调整，本田中国新闻发言人朱林杰强调不是“全部进行调整”，但具体调整哪些职能现在还无法对外公布。这关系到广本是否只是扮演代工工厂的角色，还是将效仿一汽-大众奥迪事业部模式那样承担销售管理的职能，以及将来的利润分成问题。

一家已经退网的讴歌经销商内部人士认为“讴歌定价太高，不符合实际”。他说，在开业之初的2008年4S店还是盈利的，年销量在300至400台之间。但当年面向大排量汽车的消费税出台之后，讴歌大幅上调了官方指导价，而宝马、奔驰等其他品牌当时并没有涨价。以MDX为例，指导价从67万元涨至了80万元，但消费者的心理价位还停留在之前优惠完大约60万元的价格，可经销商的成本已经到了72万，在低价拿到的库存车被消化完之后，车一下子就变得非常难卖。直到退网前，年销量只有30至50台，停业前几个月，店里已经干脆不再向厂家提车。因为如果只按客户订单每月提1到2台，返利少提车价就相应变得很高，但如果按照厂家的目标来提车，就会形成库存积压。他透露投资商计划在原址重新开一家雷克萨斯店。

　　

所以，先把过高的价格降下来是讴歌决定国产最为直接的原因。其目前在售的六款车型中，有五款是3.0L以上的大排量车型，仅关税就接近40%。以中国消费者接受度最高的MDX系列为例，官方指导价超过80万元，即便按现在市场优惠20万元来计算，也比北美4.2万美元（约合26万人民币）的售价贵了1倍多。

　　

前克莱斯勒东北亚区副总裁、现任博斯咨询公司高级专家的Bill Russo在接受《第一财经周刊》采访时说，在国产化问题上，日系品牌已经落后了十余年，但它们现在不得不这么做，否则就将一直面对更高的成本。出于同样的考虑，英菲尼迪在去年宣布了在湖北襄阳的东风日产工厂投产的计划，两款国产车型明年就将上市销售。

　　

但与日产不同的是，本田在华有广汽和东风两个合资伙伴。而且，两家都有与讴歌同平台的车型在生产。广汽在赢得讴歌的同时，也在争取雷克萨斯的国产。雷克萨斯的ES系列与广汽丰田的凯美瑞出自同一平台，广汽高层曾在包括经销商大会等场合多次向丰田方喊话，但同样面对一汽和广汽两个合作伙伴的丰田对国产化的态度一直不甚明朗。

　　

英菲尼迪和讴歌相继决定国产，以及讴歌落户广汽，或许都将影响丰田的决定。

　　

讴歌没有选择将现有车型直接国产，而是重新开发一款紧凑型SUV，除了降低价格的需要，也是为了迎合中国市场的消费需求。2012年国内SUV销量同比增长超过20%，是增速最快的车型，其中2.0升及以下的紧凑型SUV占比更是接近七成。

　　

但问题是，即便国产了，也不一定能让讴歌彻底摆脱在中国市场所遭遇的窘境。

　　

在豪华紧凑型SUV这个细分市场，奥迪Q3、宝马X1已经相继国产，并且将价格下拉到30万以内。讴歌要在市场上占据一席之地，产品表现和定价都面临着不小的考验。

　　

要提升销量为国产化做铺垫，讴歌还必须转变之前将“有留学背景的海归派”作为主要目标消费群体的思路，这样的用户定位显然过于狭窄。华南区一家讴歌店的市场经理告诉《第一财经周刊》，他们的客户很多是当地类似五金商会等行业协会会员的企业主，并不是“海归派”。

　　

品牌号召力偏弱是讴歌自身已经意识到并在着手解决的问题。在今年半年的经销商大会上，讴歌表示将会在下半年增加广告宣传费用，给经销商的市场费？用也会增加。

　　

“比起英菲尼迪和雷克萨斯，讴歌的产品线更短，所以销量和份额的增长都会相当有限。”Bill Russo说。这也是为什么讴歌比雷克萨斯早三年进入美国市场，销量却落后于后者的原因。2012年其在美销量占全球销量的近九成，为15.6万台，但距离最高峰时2005年的21万台已经减少了1/4；而雷克萨斯则在2000年到2010年连续11年保持了美国豪华车销量的冠军，2012年共销售24.4万台车。

　　

国产化的讴歌是否会吸取美国市场的经验教训，也将决定其2016年之后的市场表现。

　　

更重要的是在这之前的三年如何维系现有经销商的忠诚度。Bill Russo认为，讴歌应该向经销商提供更具竞争力的价格以及更丰厚的激励机制。这可能会限制讴歌自身的利润空间，但也许是唯一的办法。与此同时，为了支撑未来国产化之后的销售，讴歌可以考虑引入更多本田的经销商。

　　

去年9月，本田社长伊东孝绅曾公布到2016年实现全球销量600万台的目标，虽然并没有明确其中讴歌所占的比例，但他表示计划投入10亿美元在2015年前对旗下所有车型全部进行一次更新换代。其中，作为主力车型的新款MDX将在下半年进入中国市场，“目前还不知道具体价格，不过看外形和性能参数，我们觉得蛮有信心的”，一位经销商人士说。

　　

联系编辑：gaoyulei@yicai.com

Click here to read this article at cbnweek.com

China Car Sales Fall Amid Japan Tensions

The Wall Street Journal, October 10, 2012

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.

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.

Click here to read the article at WSJ.com

Japan Auto Makers Count the Cost of China Spat

The Wall Street Journal, September 26, 2012

Click here to read the article at wsj.com

By WILLIAM MALLARD

No wonder Japanese auto makers are slowing production in China. Who would buy a Japanese car in China right now, given drivers of such vehicles risk attack by their compatriots enraged by the country's territorial dispute with its neighbor?

Though the spat has lingered for weeks, the severity of the economic impact is only just becoming apparent. Worries about production cutbacks for Japanese auto makers are intensifying. Nissan, 7201.TO -2.64% for example, now says it will halt some passenger-car production until Oct. 7, while Toyota 7203.TO -2.67% says it is adjusting production of its pricey Lexus models.

The concerns sent shares in Japan's Big Three down Wednesday. Honda 7267.TO -4.88% fell the most, by 4.9%.

There will be a short-term hit to earnings. China accounts for between a fifth and a tenth of global sales by volume for the three car makers. In a dire case, production might be halted for, say, a month. Under that scenario, global unit sales for the Japanese companies would likely be down by around 1% to 1.5% this year. The impact on revenue could be even bigger because foreign car makers typically charge more for their premium brands in China than elsewhere. In some case, they charge twice as much.

Margins could also take a hit from rising input costs. Lower production means less buying power for parts, and that pushes up the total cost structure, says Bill Russo, China auto analyst at Synergistics.

The anti-Japan sentiment has been on the wane in China in recent days. But the spat goes on. Beijing is unlikely to take a softer tone ahead of a once-a-decade leadership change expected in coming weeks. Japan may even ratchet up the rhetoric: The the main opposition party Wednesday chose an outspoken nationalist as its standard bearer heading into elections, likely in coming months.

Previous bilateral flareups have meant only a blip in sales of Japanese cars in China. But the full effect on Japan's auto makers hasn't been counted yet. China is a key growth driver for the entire auto sector. Honda, Nissan and Toyota will hope a peace is brokered soon.

Write to William Mallard at billy.mallard@dowjones.com