Japanese car sales in China plunged -- and a Toyota dealership was even burned -- during protests over a diplomatic dispute.
Slowing automotive sales and perhaps some lingering resentment toward Japan may cost Toyota as much as 10% of its dealer network in China because they aren’t making any money.
When all the numbers are totaled, Toyota, Japan’s largest automaker, expects to fall short of its goal of selling 1.1 million units in China due to a faster-than-anticipated economic slowdown and resulting price war in the local auto market.
IHS Automotive pegs 2014 sales at 1.09 million and the near future isn’t shaping up to be any better as Toyota is likely to sell just slightly more than 1 million vehicles in 2015, two company executives told Reuters.
However, the lower-than-expected sales aren’t necessarily the biggest issue for the dealers: they’re not making money on the vehicles they do sell.
An official of the China Automobile Dealers said in an interview with a western wire service that of the 523 distributors in the FAW-Toyota Motor Sales Co. group, 95% are losing money and some dealers may could stop selling FAW-Toyotas or shut down altogether.
The looming defections come as the state-backed dealer’s group sent a letter to FAW-Toyota last week seeking subsidies to help meet costs caused by excess inventory.
The shortfall indicates Japanese automakers in China are continuing to face challenges though diplomatic relations between China and Japan are slowly recovering from a confrontation over uninhabited islands in the East China.
The dispute helped turn Chinese consumers against Japanese goods, including automobiles. Several dealerships were vandalized at the height of the standoff over the islands.
Toyota, however, is also facing competitive pressure from market leaders Volkswagen AG and General Motors Co. as well as Ford Motor Co. and Hyundai, which has announced it plans to build two additional plants in China. GM and VW, meanwhile, are on the verge of announcing new sales records in China.
The Japanese automaker has unofficially aimed for 1 million vehicles in China since 2010, coming close with 917,500 vehicles in 2013. GM and VW sold more than 3.5 million vehicles.
A relative dearth of redesigned models for 2015 will leave growth in the new year more or less on par with that of the overall market, which is expected 7.1% to 24.9 million vehicles, according to IHS.
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Hyundai Motor Co said this week it would build two factories in China, its first new manufacturing plants since 2012 as the South Korean automaker bets on growth in the world’s biggest car market even as the economy slows.
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Hyundai said the factories, which will start production in 2016 and 2017, would help it better compete with rivals, including Volkswagen and General Motors. Hyundai’s sibling, Kia Motors Corp., also said it would expand capacity at one of its three Jiangsu province factories to up to 450,000 vehicles by 2016 from 300,000 now.
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The automakers declined to give a value for the investments but Hyundai said the factories –which are capable of producing 300,000 vehicles each – would help it and Kia maintain their marketshare of just over 10% in China.
Overall, Hyundai and Kia expect to have a combined China production capacity of 2.7 million passenger and commercial vehicles by 2018.