Analysts have scaled back full-year earnings estimates for Toyota, Nissan Motor Co. (7201) and Honda Motor Co. (7267) in the past month amid concerns about anti-Japan sentiment in China, based on data compiled by Bloomberg. They were right about Honda, which yesterday cut its annual profit forecast by 95 billion yen ($1.2 billion), or 20 percent, as a wave of protests spread across the world’s biggest automobile market in September.
For the Japanese automakers, Chinese consumers’ aversion toward their products follows last year’s tsunami and Thai floods that destroyed factories and disrupted supply lines. The latest adversity -- fueled by a territorial dispute over a group of islands claimed by both countries -- is turning into an opportunity for Volkswagen AG (VOW) and Hyundai Motor Co. (005380) to pick up market share in China.
“What Honda’s announced is a good indication of the storms ahead for the Japanese earnings season,” Ashvin Chotai, London- based managing director at Intelligence Automotive Asia, said by phone. “Bad as it is, these sort of anti-Japanese feelings don’t go away very quickly.”
Honda, Japan’s third-largest automaker, cut its full-year China sales estimate 17 percent and lowered projections for operating profit and revenue. The announcement comes less than a month after the Tokyo-based company reported September sales in the country tumbled 40 percent to 16-month low.
The decades-long territorial dispute, involving a group of islands called Senkaku in Japan and Diaoyu in China, was reignited in April, when Tokyo Governor Shintaro Ishihara, a longtime critic of China, proposed buying the territories. That led Prime Minister Yoshihiko Noda’s administration to purchase the islets last month, escalating tensions between the two nations and sparking violent protests across China.
While traffic at dealerships in China is gradually recovering, sales may not return to normal until the Lunar New Year in February, Honda Executive Vice President Tetsuo Iwamura told reporters yesterday. The company is planning to adjust production through at least mid-November, he said.
“China is a major risk, and this is causing confidence to wane,” said Mitsushige Akino, who oversees more than $600 million at Ichiyoshi Investment Management Co. in Tokyo.
Honda, which accidentally released earnings before the market close, fell 4.7 percent to 2,399 yen yesterday, becoming the biggest drag on Japan’s Nikkei 225 (NKY) Stock Average. Toyota and Nissan shares also fell, reversing earlier gains, after Honda reported its earnings and forecasts.
Full-year average earnings estimates by analysts have fallen in the past four weeks for Honda, Nissan and Toyota, according to data compiled by Bloomberg.
Toyota has said it may fail to meet its target to sell 1 million units in China in 2012 after last month’s deliveries in the market tumbled 49 percent -- the most in a decade. Nissan, the biggest Japanese carmaker in China, may cut its operating profit estimate by as much as 100 billion yen, the Nikkei newspaper reported last week. Toyota reports earnings Nov. 5, followed a day later by Yokohama-based Nissan.
Honda’s profit in the second quarter ended Sept. 30 was 25 percent below the average analyst estimate compiled by Bloomberg, even after the revisions in the past month. The average analyst estimate for Nissan’s second-quarter net income has fallen in the past four weeks to 91.2 billion yen. For Toyota, the consensus has risen to 233.5 billion yen.
“Financial analysts are certainly underestimating the scale of the anti-Japan feelings in China,” Chotai said.
By contrast, Germany’s Volkswagen this month reported that China sales in the July-to-September period climbed 21 percent. Seoul-based Hyundai Motor last week reported second-quarter profit that exceeded analysts’ estimates and said the Korean carmaker benefited from anti-Japanese sentiment in China.
Aside from last year’s natural disasters, Japanese automakers in recent years have battled with a stronger yen and the global financial crisis following the collapse of Lehman Brothers Holdings Inc. Toyota also had to cope with the recall of more than 10 million vehicles in 2009 and 2010 for defects associated with unintended acceleration.
And until Chinese consumers return to Japanese dealerships, executives such as Toyota’s president will have to put their wishes for a crisis-free year on hold.
“I feel that we have hit rock bottom and that we are turning the corner,” Toyoda told reporters in Tokyo on March 22, a year after the earthquake-triggered tsunami ravaged Japan. “What we want more than anything is for nothing to go wrong this year.”
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