China deserting Japanese brand cars

by Tian Ying

Bloomberg

Three months after the Senkakus dispute led rioters to vandalize Japanese cars in China, Japan’s leading automakers are luring back buyers with discounts and guarantees — but some dealers may take more persuasion to keep investing in their brands.

“Sales of Japanese brands plunged about a third at my outlets,” said William Chen, whose family owns around 30 showrooms selling Nissan vehicles and nine other brands in the eastern city of Taizhou. “I would prefer safer brands over Japanese ones in the future.”

More distributors than ever are considering quitting Japanese car brands even as showroom traffic and orders begin to rebound, the state-backed China Automobile Dealers Association said.

Failure to sign up enough new dealers will severely hurt Japan’s automakers as they compete to expand in smaller Chinese cities, where the bulk of future demand lies, while benefiting General Motors Co., Volkswagen AG and Hyundai Motor Co.

“It’s definitely going to affect Japanese carmakers’ expansion,” said Ivo Naumann of Shanghai-based strategy adviser AlixPartners. “If dealers had to choose between say, Toyota and Volkswagen, why would they choose a Japanese brand if they have to deal with (possible similar flare-ups) every two or three years?”

About 1,800 vehicles under Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co.’s brands were damaged during anti-Japanese protests that erupted across China after Japan nationalized the disputed and China-claimed Senkaku islets Sept. 11, according to Guangzhou Automobile Group Co.

U.S., German and South Korean brands gained market share in October at the expense of Japanese marques, the China Association of Automobile Manufacturers said in a Nov. 9 statement.

During the violent protests, a Toyota and Honda dealership was burned down in the eastern port city of Qingdao and the owner, Wang Chongwei, suffered losses of as much as 80 million yuan (about ¥1.1 billion), Netease.com reported in October.

Though Wang’s case was an extreme one, other dealers selling Japanese brand vehicles throughout mainland China have been struggling with declining sales, as the ensuing consumer backlash sent sales plunging 59 percent in October.

The collective market share of cars branded by Japan’s automakers plummeted to a record-low 7.6 percent, compared with a 19 percent stake in the first eight months of the year, the China carmakers’ association reported.

“Investors look to maximize their profits and if sales tank, they will have to switch to other brands,” said Liu Qingjun of Goldenport Holdings Ltd., which builds and operates multishowroom sites.

A Toyota dealership at its Beijing compound stopped selling cars in November and the owner is now looking to sign up with non-Japanese brands, Liu said.

“I have never seen so many dealers desert the Japanese brands,” said Luo Lei, deputy secretary general of the car dealers association. “The psychological impact on buyers and dealers is unparalleled. Automakers have to figure out a way to address it, otherwise it will do long-term harm.”

A very small number of Honda dealerships have stopped operations “out of their own considerations,” said Zhu Linjie, a Beijing-based spokesman for the firm.

GAC Toyota Motor Co., a Toyota joint venture in China, has meanwhile pledged to waive punitive measures imposed on dealerships for failing to meet sales targets. Automakers typically award bonuses or levy fines on dealers depending on whether they meet annual sales targets.

“If dealers are worried about their survival, we will take measures to help them become more confident about their future income,” Feng Xingya, executive vice president of GAC Toyota, told reporters at the Guangzhou International Auto Show last month.

Feng said the company is sticking to its target of increasing its outlets in China to 600 by 2015 from 350 at present.

Nissan, the biggest Japanese automaker in China, is aiming to expand in smaller Chinese cities and has strengthened support to dealers, according to Hideki Kimata, a senior vice president at the carmaker’s Chinese joint venture with Dongfeng Motor Co.

Showroom traffic has recovered to last year’s levels while orders are at 80 percent, Kimata said.

“Japanese automakers have been pretty considerate since the (territorial) spat, providing subsidies to auto dealers to help cover part of their losses,” said Lou Zhibin of Tianjin Airport International Automobile Area Development Co. in northern China. “Still, nobody is willing to set up Japanese brand dealerships now.”

That will hurt Toyota, Nissan and Honda as they seek to tap first-time buyers in China’s smaller cities, which McKinsey & Co. estimates will account for 60 percent of new vehicle sales by the end of the decade, up from 40 percent at the end of last year. Car sales in so-called third- and fourth-tier cities are forecast to grow about 10 percent annually through 2020, versus just 4 percent a year in Shanghai and Beijing.

“You can’t blame the dealers,” Zeng Qinghong of the Guangzhou Automobile Group said. “Who will keep outlets running if they don’t have any business and keep incurring losses?”