Here’s Why Japanese Auto Sales Are Down in China

Disputes between Japan and China over ownership of islands in the East China Sea are creating trouble for Japanese car makers. Protests have caused Toyota (NYSE:TM) and Nissan plants in China to halt production as the country enters the Golden Week national holiday.

In the year ending March 2012, China accounted for about 10 percent of Toyota’s sales, while Nissan was more exposed with 26 percent of revenue coming from the country. IHS Automotive analyst Lin Huaibin has received reports that October sales were down as much as 50 percent, but that there’s no reason to expect the trend to continue. “The situation will calm down within the next one month or so,” he said, “and then demand will resume again.”

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Other analysts think the damage will be more significant. Advanced Research Japan auto analyst Koji Endo said in the New York Times, “For the time being I think you’re going to see Japanese automakers’ sales in China down by 20 to 30 percent. The last time we had protests like this, in 2010, the effects only lasted about a month, but I think this time is going to be different.” Toyota, Nissan, and Mazda, among others, have temporarily suspended production in the country.

The gravity of the protests is still being weighed, as people who work at the plants are urged to stay indoors until things settle down. American car makers Ford (NYSE:F) and General Motors (NYSE:GM) posted record August sales numbers in China, and could reap some rewards from the anti-Japanese sentiment. Automakers across the world have been relying on American and Chinese car sales to recoup losses in the European market.

Nissan Motors CEO Carlos Ghosn told CNBC Asia’s Cash Flow on Tuesday, “We are seeing growth everywhere in the world, except Europe. So our main concern is Europe.” He noted that European car sales were down 7 percent, while the rest of the world was up 6 percent. Ghosn still expects sales in China to grow 6 percent in 2012 as well.

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