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Toyota weathering China risks by spreading eggs to other baskets

Kyodo

Toyota Motor Corp. has revised upward its group operating profit projection for the year through March to ¥1.05 trillion from ¥1 trillion, despite struggling along with other Japanese automakers with faltering sales in China.

Chinese consumers are increasingly shunning Japanese products in the face of the bitter territorial row over the Senkaku Islands in the East China Sea.

Toyota owes its success to expanding its presence uniformly in overseas markets without being influenced by a slump in one region.

“The results were more than we deserve from our strength,” Executive Vice President Satoshi Ozawa modestly told a news conference Monday in announcing Toyota’s semiannual earnings through September, which showed a sharp rebound from a year earlier.

The impact of the sales slump in China is expected to bite fully in the second half of the business year from October. Toyota is anticipating a drop of around 200,000 units in sales in China.

But the company appears to believe strong results in other regions will probably more than offset the adverse factor and lift its overall earnings.

In the lucrative North American market, Toyota has finally come out of what one senior official describes as “a long tunnel.” It suffered from major product recalls between 2009 and 2010 there, but Toyota’s market share has been rapidly recovering.

Toyota had long been urged to grow out of its reliance on North America to generate profits. On this front, too, the carmaker has been making strides.

The auto market has been growing rapidly in Thailand and other Southeast Asian countries where Toyota has for years been making investments. These markets are now large enough to cover drops in sales in Europe or China for Toyota.

Nonetheless, consumer aversion to Japanese products in China is a major blow to Toyota, given that it is the world’s largest car market, where all the major manufacturers are fiercely vying to establish a strong presence.

On a major microblogging Internet site in China, messages still constantly appear telling people it is shameful to drive a Japanese vehicle and that it might incur protests or their cars may be vandalized.

In October alone, Toyota saw its sales in China drop 44 percent from a year earlier. On Thursday, a dealer handling Toyota models in Beijing was forced to close due to the drastic fall in sales.

“It is extremely difficult to predict when a recovery may come,” said Executive Vice President Ozawa.

In 2011, Japanese automakers sustained heavy blows from the March earthquake and tsunami that crippled their production bases in northeastern Japan as well as the major flooding that inundated their operations in Thailand.

In March, Toyota President Akio Toyoda said of the upcoming business year from April, “We really hope this year will be one without major incidents.” But as it turned out, it is faced with unexpected adversity in China.

Expanding into overseas markets entails risks. In India, another promising new market for automakers, Suzuki Motor Corp.’s Indian subsidiary Maruti Suzuki India Ltd. was forced to close a factory for about a month due to worker violence this summer.

Toyota also temporarily suspended production at a South African factory because of strikes last month.

Yet Japanese automakers do not appear to be putting the brakes on overseas expansion because they can’t expect much growth in the domestic market, where the population has already started shrinking.