Toyota and Japanese Automakers: Watch These Red Flags in China

A territory dispute continues to rage between China and Japan. Ignited when Japan nationalized islands in the East China Sea, anti-Japanese sentiment and protests have forced automakers to suspend production and lower their outlook in the world’s largest car market.

Toyota (NYSE:TM) is Japan’s largest car manufacturer and pulls about 12 percent of its sales from China. The company reported on Tuesday that its September sales in China have fallen 48.9 percent from last year. For the first nine months of the year, Toyota and its affiliates saw growth of 4.6 percent from the same period a year ago.

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Honda (NYSE:HMC) is reporting a 40.5 percent drop in China auto sales. The country accounts for about 20 percent of Honda’s total sales. Nissan has the largest stake in China, where it sells about 27 percent of its vehicles. Total market share for Japanese brands in China is 21.2 percent as of the end of August, down slightly from last year and likely to drop further.

“Inventories are growing, factories are operating less, and retail is not going well at all. It’ll be the German and South Korean makers that will take over share from the Japanese brands when Japanese cars sell less. I don’t see a single factor that is positive,” said Koji Endo, a senior analyst at Advanced Research Japan, according to Reuters.

BMW sales in the country exploded in September, up 55 percent from a year ago, while Audi and Hyundai claimed 20 percent and 15 percent gains respectively. The Washington Post is reporting that a study by JPMorgan Chase expects Japanese exports to China to drop 70 percent during the October-December period. Cars account for 4.5 percent of total Japanese exports to China.

Meanwhile, American car manufacturers Ford (NYSE:F) and General Motors (NYSE:GM) posted strong sales numbers in China for August and September. GM was up 7.3 percent from last August, with Ford showing 39 percent year-on-year growth for the month.

If the protests continue and tensions remain high, Japanese automakers might refocus their considerable energy to the American market. Both Honda and Toyota posted double-digit sales increases in the United States last month. Right now, the global car market is wonky at best, with American companies looking to grow in China, Japanese manufacturers looking to grow in the U.S., and the European market a well-agreed upon mess.

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