Japanese Carmakers Push “China Content” To Ease Boycott

Japanese car sales not expected to recover fully till late 2013

Japanese carmakers, which suffer from sharp decline in car sales in China due to the Diaoyutai (aka Senkaku Islands)dispute, are promoting “local content” to overcome the massive boycott against Japanese goods, emphasizing that most auto parts being made in China.

The Wall Street Journal reports that in addition to compensating owners for vehicles destroyed by demonstrators, Sino-Japanese joint ventures are highlighting “China-made content” in their products and their contribution to China's economy, for example by emphasizing that 90% of auto parts used are locally sourced.

Nissan Dongfeng, for example, launched a special compensation program, paying for vehicle damage and personal injury resulting from anti-Japanese sentiment, also assuring consumers that new cars found to have quality problems within 7 days of purchase will be replaced.

Furthermore, Nissan has advertised to emphasize that over 90% of parts used in Nissans are supplied by Chinese partners, also highlighting its contribution to China's economy.

Hideki Kimata, Nissan's vice president of marketing, admits that anti-Japanese sentiment motivated boycott is a psychological reaction that takes time to wane.

While in the second half of 2012 the Diaoyutai issue froze Sino-Japanese relations, some Chinese consumers did not take part in the boycott of Japanese goods. A report quoted one Chinese consumer's questioning a friend's motive in owning a Japanese car, to which the car owner responded that the key issue being quality.

Kimata says that Nissan's measures have already begun to bear fruit, especially in southern China where consumers are more price-sensitive. He says that dealers are seeing customer traffic return to the levels of early last year, and that overall, the auto market in 2013 is expected to grow by single digit, with Nissan Dongfeng's growth outperforming the market average.

Sales Decline
According to news report, Japanese car sales in China, due to anti-Japanese sentiment, dropped 40% last September, and worsened even in October, with many carmakers experiencing the biggest declines since entering China's market.

The latest data show Nissan's new car sales for last October reached 64,300 units, down 40.3% year on year, and Honda's new car sales during the same month plunged 53.5% to 24,100, both record declines since the two companies entered the Chinese market, according to news report.

Leading Japanese carmaker, Toyota, also posted singularly miserable October sales figures, with the parent company and two China-based joint ventures selling a combined 45,600 cars, a 44% drop from one year earlier, in contrast to 44,100 sold in September. Mazda sold 9,511 cars in Oct., down 45% year on year, worse than the previous month's 35% drop.

The Diaoyutai dispute made meeting 2012 annual sales targets of Japanese carmakers a mission impossible, with carmakers missing such goals for the first three quarters of last year by 70%. Many auto analysts in Beijing believe that an optimistic forecast for Japanese vehicle sales to return to normal to be about December 2013.

Chinese Partners
Sales decline of Japanese carmakers also impacted their Chinese partners such as GAC and Dongfeng. GAC's third-quarter income, along with that contributed by the joint ventures with Japanese partners, was 544 million yuan, a 54% drop from the previous quarter, and the worst since the second quarter of last year.

Another company, Dongfeng, showed significant fall in sales of its joint ventures with Japanese partners, hence affecting the group's overall performance.

Anti-Japanese sentiment however worked in favor of European carmaker Volkswagen, whose sales climbed ever higher in the third quarter of last year, having reportedly leapfrogged the previously dominant General Motors, the erstwhile owner of the lion's share of China's market.

Sales Recovery
Partly thanks to promoting “China-made content” and mainly due to the shorter comparison base (the Chinese New Year holiday fell in January 2012 but in February 2013), Nissan and Honda announced considerable year-on-year growths in China car sales for January this year of 115,700 and 19,000, respectively, up 22% from one year earlier. The carmakers may not see sales recover to the normal level until August or later.

China Business News quoted Dongfeng Honda's executive vice president Chen Binpo as saying that the Diaoyutai dispute had plunged Dongfeng Honda's sales by as much as 40% at one point, and it wasn't until November of last year that a gradual recovery got underway. Chen said that mild growth has become the norm for China's auto market, and so the outlook for sales this year is not as optimistic as last year's. “We will have to wait until perhaps after August to see sales return to previous levels.”

Nissan's China-based joint venture, Dongfeng Motors, announced better-than-expected sales for January. The company's sales for December of last year dropped 24% year on year, but sales have begun to pick up since the beginning of this year, according to reports.

Honda's January performance has also improved, having sold 47,248 vehicles in China in January this year while December sales of last year were down 19.2% from one year earlier. Mazda sold 19,068 cars in China in January, down 16.1% from one year earlier, or down 10.3% from December, reportedly due to the carmaker not promoting “Chinese content” as its peers.

Notable is that many dealers were closed due to the Chinese New Year break last year in January but not in 2013, when the holidays were in February. This partly explains the encouraging sales improvement in the year-on-year growths this January.

Shockwave in Japan
With the automobile industry driving Japanese manufacturing, news of plummeting sales of Japan's eight major carmakers due to the Diaoyutai issue shocked Japanese society.

Shoichiro Toyoda, chairman of Toyota Motors, said two years ago that the company has no future without winning in China. Plunging sales in China since last September, when it recorded the largest single-month decline since entering the Chinese market, indeed cast a shadow over the global automobile giant.

According to the Japan Automobile Manufacturers' Association statistics, Japan's automobile industry involves over 50,000 businesses of varying sizes across the country. Accordingly as the car-making sector slides, so does the Japanese economy.