A Toyota dealership in Qingdao was burned by protestors in a dispute over an island chain claimed by both China and Japan.
The ongoing dispute over a chain of uninhabited islands in the South China Sea is proving to be more than just a matter of international politics. A boycott by Chinese consumers has led to a sharp downturn in sales among Japanese automotive brands and that will force Toyota to sharply scale back production at its largest Chinese assembly plant, according to reports from Asia.
Two of the three lines at the factory in Tianjin, part of a joint venture between Toyota and China’s First Auto Works, or FAW, will be idled next week while the third line will undergo additional cutbacks, according to Japan’s Nikkei news service and other sources.
The Asahi Shimbun, meanwhile, indicates Toyota may have to adjust future production plans if an ongoing boycott drags on.
While Toyota declined to discuss the reports it has confirmed its September sales plunged 48.9% compared to year-earlier levels. While the Chinese market has been slowing in recent months, that downturn is unquestionably related to rising political tensions between the two countries touched off when Japan purchased a chain of islets from their private owner.
The Chinese believe they are part of their territory and call the islands the Daioyu. Japan claims them as the Senkaku. Complicating matters, the sale occurred just as China was set to mark the anniversary of Japan’s invasion that helped launch the Second World War.
Protestors initially took the street in surprising number and riots occurred across China – leading to the torching of at least one Toyota dealership and the destruction of many Japanese vehicles. Toyota earlier had indicated it would take steps to help compensate Chinese owners for repairs or offer incentives to buy replacement vehicles.
But analysts worry the production cuts could be a concession that the boycott may drag on and lead to an ongoing problem in China, the world’s largest automotive market. Like other Japanese makers, Toyota was relatively late to enter the People’s Republic due to long-standing enmity between the two nations. But prior to the Daioyu/Senkaku dispute it had been rapidly building momentum and gaining on the Chinese market leaders, General Motors and Volkswagen.
In fact, that had encouraged Toyota President Akio Toyoda to up his global sales forecast for the 2012 fiscal year ending next March 31 to 9.66 million which would have been an all-time record. It is not clear if Toyota will be able to meet that goal now, or to regain its crown as the world’s best-selling automaker, a mantle it ceded to GM in 2011 due to production cuts that followed Japan’s March earthquake and tsunami.
Toyota officials have downplayed concerns about the September sales decline – but it was the maker’s largest decline there since January 2008.
Other Japanese automakers have also been hit by the boycott, including Honda which reported a 40.5% drop in Chinese volume last month.
Concerns about an ongoing boycott played a major role in the decision by Standard and Poor’s to downgrade Toyota stock last week.
“Although we have not yet quantified the financial impact, we lower our opinion to reflect headline risk we see from increased headwinds in certain parts of its operations,” Efraim Levy, S&P’s senior equity analyst, said in a note to investors.
(For more on that downgrade, Click Here.)