Japan auto makers to slow production in China amid darkened outlook

BEIJING (Reuters) - Japanese automakers including Toyota Motor Corp and Nissan Motor Co. are cutting back production in China in the wake of anti-Japan protests that shuttered dealerships and darkened their sales outlook in the world's biggest car market.

Production slowdowns are a normal feature of the auto industry in mature markets like the United States and Japan, where they are used to keep inventories from ballooning and avoid pressure for automakers to offer deep discounts that erode profitability.

But the steps by the Japanese automakers to cut output in China are an anomaly in a market that has driven the industry's global growth over the past decade and where most automakers had been adding capacity until China's economic slowdown in recent months. That caused production to outpace sales, resulting in larger-than-normal inventory levels at many car dealers.

"For the time being I think you're going to see Japanese automakers' sales in China down by 20 to 30 percent," said Koji Endo, auto analyst at Advanced Research Japan.

"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. This is going to have a serious impact."

EXTENDED HOLIDAY SHUTDOWNS

Nissan, Japan's top automaker in China, said it would halt production at a joint venture in China starting on Thursday, three days earlier than planned, and extending through next week's national holiday period.

Toyota plants in Tianjin and Guangzhou will also suspend production from Wednesday through the holiday, Tokyo-based spokeswoman Shino Yamada said, a few days earlier than planned. Production at factories in China may be further curtailed depending on market conditions, she said.

As a result, a senior Toyota executive in Beijing said the company probably won't be able to meet its goal of selling one million cars in China this year. In 2011, Toyota with its local Chinese partners sold about 900,000 cars in the country.

"It's very difficult to sell cars right now, but that's true with every Japanese brand. Not just us," said the executive, who spoke to Reuters on condition of anonymity because he is not authorized to speak to the media.

In addition to Toyota and Nissan, Mazda Motor Corp. has decided to halt production in China on Friday and Saturday, giving workers two extra days off as part of the national holiday production shutdown.

Suzuki Motor Corp. said it also had stopped one of two shifts that it normally runs in China.

LINGERING RESENTMENT

Anti-Japan sentiment in China escalated earlier this month after Japan said it would buy a group of disputed island in the East China Sea, called Diaoyu in China and Senkaku in Japan, from a private owner. It sparked the latest flare-up in tensions between the Asian neighbors that has smoldered since the end of the World War Two.

In protests across China, angry demonstrators vandalized properties of Japanese companies, including a Toyota outlet in the eastern city of Qingdao that was torched.

A senior Beijing-based Toyota sales executive said the long-term impact of the dispute on Japanese brands was uncertain.

"Unlike before, when sales recovered fairly quickly, things seem very different this time," he said. "But it's still very difficult to gauge what kind of long-term fallout we are going to have."

The executive, involved with sales and marketing of Toyota's Lexus brand in China, said all Lexus outlets in China had reopened and are operating normally.

"But customers are expressing fears about owning Japanese-branded cars," he said, "and that worries me a bit."

The latest auto production adjustments come on top of general cutbacks Japanese auto makers had been making prior to the protests. Global auto makers in general have been coping with slower-than-anticipated auto sales in China this year.

China's economy grew at its slowest pace in more than three years in the second quarter. A factory survey in August showed China's manufacturing sector contracted at its sharpest pace in nine months.

In the auto sector, Japanese auto makers had a roughly 19 percent combined share of China's passenger car market in August before the protests. That was down from 20 percent in July, according to China Association of Automobile Manufacturers.

Bank of America Merrill Lynch analyst Bin Wang said his checks with Japanese auto dealers in Guangdong province since the protests showed that sales were down on average by 60 percent, adding that the slowdown had boosted sales for German, American and Korean brands.

Endo, at Advanced Research Japan, said he expected Japanese automakers would continue to adjust production if sales remain weak and could take measures such as cutting shifts or slowing line speeds to keep inventory from building.

As a result, he said, parts suppliers in both China and Japan would have to cut output as well.

(Additional reporting By Tim Kelly, Chang-Ran Kim and Kentaro Sugiyama in Tokyo, Maria Ajit Thomas in Bangalore, Fang Yan in Beijing; Editing by Sriraj Kalluvila and Ken Wills)

Source: http://news.yahoo.com/japan-auto-makers-slow-production-china-amid-darkened-054642712--business.html

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