Caixin
Oct 12, 2012 03:52 PM

Closer Look: Japanese Carmakers Were Due for Bump in China Road

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Japanese car sales in China plunged 41 percent year on year in September, data from the China Association of Automobile Manufacturers (CAAM) shows.

Many Japanese carmakers said they had anticipated the bad news. The development was, of course, partly due to anti-Japanese protests that raged across China last month, but the decline of Japanese car sales in the world's largest auto market was destined even without the impact of a boycott.

Japanese cars once dominated China's auto market, which has grown on average at double-digit rates during the last decade. Even in 2008 during the worst of the financial crisis, nationwide sales posted a 6.7 percent year-on-year increase, hitting 9.38 million units, and Japanese brands took the lion's share at 30.8 percent.

But that dominance has faded. In 2009, Toyota recalled millions of cars around the world over suspicions of a defective braking system, but said the problem did not exist in China. This left many Chinese consumers unhappy.

Last year, sales were damaged because of an earthquake, which shut down most auto parts suppliers in Japan and forced many China-based assembly plants to halt production for a week.

The market share of Japanese cars in China went lower, at 21, 22.8 and 21.6 percent, respectively, in the three years from 2009. It fell further to 19 percent in the first eight months of this year and then slumped to 12.2 percent in September.

Yet analysts say the decline was not so much because of the natural disaster as the blunting of Japanese brands' competitive edges over the past few years.

Cultural factors, among other things, may have led Japanese companies to respond less promptly than their Western counterparts to shifting demand in the Chinese auto market, senior auto analyst Zhong Shi said.

"Japanese auto makers lag behind their European and U.S. rivals in terms of research and development and product upgrading customized for Chinese consumers," he said.

Whereas Volkswagen and General Motors have added Chinese elements to their model designs in China, Japanese carmakers such as Toyota tend to sell only models that have been proven successful in Japan, he said.

Audi, for example, was the first foreign brand to introduce a longer version of its sedan to suit the demand of Chinese consumers for more spacious backseats, followed by Mercedes-Benz and BMW. Toyota, by contrast, has not made any similar move with its luxury Lexus model.

Japanese carmakers also fall behind their Western rivals when it comes to hiring local staff. While many Chinese nationals have become executives at GM's and Volkswagen's Chinese companies, Toyota has imposed an administrative limit on the ratio of Chinese staff its Chinese operations can hire.

Japanese carmakers are also losing their traditional advantages. They "were famed for fuel efficiency and steady performance," CITIC Securities' chief auto analyst Li Chunbo said, but the reputation has been tarnished in recent year, not least by Toyota's recall, he said.

As for fuel efficiency, Japanese carmakers have focused on developing hybrid cars for years, but the sales of hybrid cars still accounts for only about 10 percent of Toyota's total sales, and less than 5 percent at both Honda and Nissan.

In comparison, German carmakers concentrated on improving the combustion efficiency of traditional fuel and have made much progress.

It is the decline of competitiveness that caused Japanese car sales to slump in China. According to CAAM, in 2008, three Japanese auto brands made it to the top ten measured by sales volumes in China. This year, none remained.

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