Toyota-Led Slump to Slow Growth in Chinese Automobile Market

Chinese passenger-vehicle sales probably rose at their slowest pace in eight months as a territorial dispute with Japan turned consumers away from buying cars made by Toyota Motor Corp. (7203) to Nissan Motor Co. (7201)

The state-backed auto association will probably say deliveries increased 2 percent to 1.35 million units last month, based on the average estimate of nine analysts surveyed by Bloomberg. Toyota and Nissan yesterday reported their biggest drops in China sales since at least 2008, while Honda Motor Co. (7267)’s sales were the lowest since May 2011, according to monthly data compiled by Bloomberg.

Japanese brands may lose their collective market-share lead in China for the first time since 2005 after rioters torched dealerships and smashed cars in protests over disputed islands. The China slump is the third crisis for the automakers in less than two years, after the Japanese tsunami and Thai floods that destroyed factories and disrupted supply lines.

“People are afraid of buying Japanese cars,” said Satoshi Yuzaki, Tokyo-based general manager at Takagi Securities Co. (8625) “If the situation doesn’t settle and if Japanese carmakers can’t quantify the impact soon, there will be a lasting effect on their earnings.”

The China Association of Automobile Manufacturers is scheduled to release its monthly wholesale vehicles sales numbers at about 3:30 p.m. in Beijing.

Shares Fall

Honda fell 1.3 percent at 9:22 a.m. in Tokyo trading as the stock heads to close below its level at the start of 2012. Toyota, Asia’s largest carmaker and located in Toyota City, dropped 2 percent and Nissan slid 1.8 percent. By comparison, the benchmark Nikkei 225 Stock Average declined 1.5 percent.

Toyota’s September deliveries tumbled 49 percent from a year earlier to 44,100 vehicles, Nissan’s fell 35 percent to 76,066 and Honda’s dropped 41 percent to 33,931, the companies said yesterday.

Last week, Mazda Motor Corp. (7261) reported that deliveries in the country tumbled 35 percent to the lowest in 19 months and Mitsubishi Motors Corp. (7211) said that Chinese sales plunged 63 percent. Suzuki Motor Corp. (7269) said yesterday they fell 43 percent.

Automakers from Japan, which as a group have a higher share of China’s market than any other foreign country, are bracing for what may become a bigger crisis in China than last year’s tsunami in Japan, according to the China Passenger Car Association. Their share will fall to 22 percent this year from 23 percent in 2011, according to the group.

GDP Contraction

The territorial dispute over the group of islands -- known as Senkaku in Japanese and Diaoyu in Chinese -- may cause the Japanese economy to contract this quarter and hasten a current account slide as exports decline and Chinese tourism to Japan drops off, according to JPMorgan Chase & Co.

Toyota and Honda reported damage to dealerships from fire last month, while TV footage showed overturned Japanese cars and window shields smashed by demonstrators in some cities.

Nissan, based in Yokohama, Japan, will weigh the impact of the Chinese protests before deciding whether to revise its sales target there, Executive Vice President Takao Katagiri said on Oct. 5. Japan’s three largest automakers plan to cut production to half of normal levels in China, the Nikkei newspaper reported on Oct. 8.

It’s “looking very difficult” for Toyota to meet its target of selling 1 million vehicles in China this year, said Dion Corbett, a Tokyo-based Toyota spokesman.

Corbett said the company is adjusting production based on demand, comments echoed by Nissan spokesman Chris Keeffe.

Audi, Hyundai

Most non-Japanese brands appear to be benefiting.

Volkswagen AG (VOW)’s luxury Audi unit boosted sales by 20 percent last month to 35,512 vehicles, according to the German company. Audi last month asked a Chinese dealer to remove a banner advocating the murder of Japanese people after a photograph of the sign went viral on the Internet.

South Korea’s Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270) said Oct. 7 they will probably sell more vehicles in 2012 than the 1.25 million they had projected and that combined deliveries rose 9.5 percent to a record.

General Motors Co. (GM), the largest foreign automaker in China, may be missing out. The company earlier this week reported its slowest China sales growth in eight months and said deliveries of Buicks and Cadillacs declined.

Slowing Economy

More broadly, demand has slowed this year as China’s economic growth cooled to a three-year low of 7.6 percent in the April-June period. The nation’s services industries expanded in September at the weakest pace since at least March 2011, according to the purchasing managers’ index by the government and Federation of Logistics and Purchasing.

Last month’s sales may put at risk CAAM’s forecast for an acceleration in second-half sales.

China’s passenger-vehicle sales growth will rise 15 percent to 8.48 million units, driven by demand from first-time buyers and as the economy rebounds, CAAM said in July. Full-year deliveries may increase 11 percent to 16.09 million units, the association has said.

“The situation with the Japanese automakers is unpredictable,” said Ole Hui, an analyst with Mizuho Financial Group Inc. in Hong Kong. “We expect slower growth this year because of the slower economy and because the market still has to digest the high levels of inventory from the first half.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net; Michiko Mezaki in Tokyo at mmezaki@bloomberg.net

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

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