China may spark global auto industry reshuffle

As Toyota Motor Corp. nurses its wounds in the wake of recent recalls, a few other Japanese and some Chinese auto makers may soon emerge as true contenders in the industry.

China is already taking the lion's share of the region's automobile market, and some Japanese auto producers -- particularly Nissan Motor Co. and Mazda Motor Corp. -- are likely to do well in the face of rival Toyota's recall crisis, analysts said.

"China is now the largest single-country automobile market in the world," Steve Usher, an auto analyst at Japaninvest, said in a note to clients.

Total calendar year 2009 sales volume in China, including medium and heavy trucks and buses, was up 45%, he said -- and he expects the nation to eclipse the U.S. as the world's largest light-vehicle market in the 2010 calendar year.

"We expect Chinese automakers to become global competitors no later than the end of the current decade, as they leverage their massive local market and integrate global acquisitions," said Usher.

Chinese automakers have already begun to tap smaller emerging markets with aggressive global strategies adopted by the likes of Chery Automobile, which is unlisted, Geely Automobile Holdings Ltd. and Great Wall Motor Co. Ltd., Usher said.

In Hong Kong's early trading Wednesday, shares of Geely Automobile were down 1.4% and Great Wall Motor shed 0.4%, as the Hang Seng Index fell 1.3%. China's Shanghai Composite was 0.5% lower.

The "dominant scale" of the Chinese auto market requires "reassessment of [the] global auto industry," said Usher. "It is imperative that global automakers successfully integrate China into new product development plans in order to benefit fully from the market's strong growth potential."

Japan's top picks

And that strong Chinese growth and growth potential is one key factor for the outlook of Japanese car makers as well.

Nissan and Mazda are CLSA's "top automotive picks" in Japan. Part of the reason is their strong growth in China, CLSA senior research analyst Christopher Richter said during the independent research house's media forum held in Tokyo this week.

Nissan's sales and production figures for China showed hefty gains last month. The company reported Tuesday that its year-on-year January sales in China jumped 116% to an all-time record for a single month, as production there climbed 148.3%.

Meanwhile, big cost reductions and Chinese growth are also among the reasons CLSA has a buy rating on Mazda's stock, said Richter.

Mazda said Tuesday its export volume for January climbed 170.5% from a year earlier, while its sales in Japan rose 23.7%.

Richter said he expects to see 20% growth for Nissan this month. Honda Motor Co. and Mazda should also see healthy gains, he said.

By the end of Tokyo's morning session, shares of Mazda were up 0.4%. Shares of Nissan were down 2.4%, Toyota fell 1.5% and Honda declined 1.3% amid broad weakness in the market. The Nikkei 225 Average fell 1.8%.

Elsewhere in Asia, South Korea's Kospi fell 1.3%, Australia's S&P/ASX 200 gave up 1.1%, and Taiwan's Taiex fell 0.8%.

Fall of an icon

All the while, the outlook for Toyota, the world's largest car maker, appears glum.

Richter has a sell rating on Toyota's stock. Risks to the car maker's U.S. brand from recalls remain "unknown," he said.

The resale value of its used cars, on the other hand, is declining -- albeit modestly given the recalls of some 8 million cars worldwide because of safety issues.

Kelley Blue Book figures show that Toyota's car values are down by about 2% to 3%, and an Edmunds.com analyst said values won't drop more than about 10%. See story on Toyota's resale values.

The "mightiest car maker on Earth" was basically "brought to its knees" by these recalls, Richter said at the CLSA forum.

What Toyota decides to do about it has to be done "artfully," he said, warning that a "broad-based discounting" of the vehicles it sells may cheapen the brand and could lower the resale value of its used cars.

In the meantime, the car maker's executives are on the hot seat in Washington.

Jim Lentz, president and chief operating officer of U.S. operations, testified before Congress Tuesday in Washington. Toyota President Akio Toyoda will testify in front of another congressional panel Wednesday.