Earthquake dents Japan's chances in China's luxury car market

Reuters (Beijing) - Japan's car makers, already reeling from the country's natural disaster, may find that their woes extend to an increasingly important market: China's luxury car segment. 

Toyota Motor, Honda Motor and Nissan Motor see China's wealthy consumers as a great opportunity for their top-end brands. Nissan, for one, doubled sales of its Infiniti cars to nearly 11,000 units in 2010 and aims to double sales again this year, according to analysts. 

Such goals could now prove impossible to meet.

Unlike other foreign car makers, the top Japanese manufacturers export their luxury cars to China rather than producing them locally. With Toyota, Honda and Nissan having shut all of plants in Japan after the earthquake and tsunami, exports to China will suffer.

"The Japanese are already way behind the German brands. The earthquake will hurt their luxury brands further as they don't make them here in China," said Klaus Paur, managing director of Greater China at Synovate Motoresearch.

China, already the world's biggest car market, boasts one of the fastest growing luxury car segments. Automakers sold roughly 500,000 thousand high-end cars in China last year and the size could be easily double in the next five years, according to some estimates.

LAGGING IN LUXURY 

For companies such as Toyota and its high-end Lexus brand, selling to China's newly rich, who are fueling demand for luxury items from Gucci handbags to Rolls-Royces, is a top priority.

"Lexus has been the best-selling luxury brand in the United States for years," said Yale Zhang, managing director of Automotive Foresight (Shanghai), an industry consultancy.

"Gaining market share in China is very important for Lexus as it could be its second largest market in 5 years." 

But Japanese car makers have lagged their German competitors.

The world's high-end car makers, from Audi AG to Bayerische Motoren Werke AG , have racked up strong sales in China. Daimler AG's Mercedes-Benz sold 147,670 units in China last year, outpacing the 70 percent growth of the premier car segment.

Sales of BMWs came to 168,998 cars in 2010, exceeding the company's own target. Audi sold 227,928 units, up 43 percent from a year earlier.

By contrast, Toyota sold roughly 48,000 Lexus cars in China, a fifth of industry champion Audi, and Honda sold a mere 4,000 units of the Acura, its topline model, according to data provided by Synovate Motoresearch.

MADE IN JAPAN 

Toyota, Honda and Nissan produce their mass-market models, including the Camry, Accord and Teana, in China. Production of those vehicles will be largely unaffected by the disaster unfolding in Japan, said analysts.

All three companies have a massive supplier base in China which provides at least 80 to 90 percent of auto parts locally.

"There are hundreds of parts in a single vehicle. Some auto makers may also get parts from Japanese suppliers in China, but they could be easily replaced as there are so many alternative out there," said Cao He, a veteran analyst with Minzu Securities.

But their strategy of keeping production of premier models in Japan has forced them to charge higher prices and has helped keep their market share low.

"There has been talk about Toyota localising Lexus production in China for years," said Zhang. "I am sure Toyota will make up its minds someday, it's just a question of when."

Until then, they'll face stiff competition from the German automakers, which make select topline models in China assembly plants. Audi A6, made at its venture with Chinese state automaker FAW Group, has long been the favorite car of senior Chinese state leaders.

According to Goldman Sachs, the profit impact of stopping car production in Japan for one day would be about 6 billion yen ($73.3 million) for Toyota and 2 billion yen for Honda and Nissan.