Analysis: Japanese automobile manufacturers' future in China

Gasgoo.com (Shanghai) - Despite a recent decline in anti-Japanese sentiment, initially instigated by the Diaoyu Islands dispute, Chinese sales of Japanese automobiles have yet to recover. Furthermore, relationships between the two countries still remain very tense, meaning that a new wave of demonstrations advocating the boycott of Japanese goods could flare up again at anytime. According to September performance reviews, sales of Toyota, Honda and Nissan vehicles in China fell over 35 percent over the month.

Relations between China and Japan have hit rough spots at several points over the past two decades, leading to temporary sales falls of Japanese vehicles in the country, but never before had they reached the scale seen this autumn. Furthermore, now that China has usurped the US to become the world's largest automobile market, manufacturers from across the world have found themselves increasingly dependent on the country. Sharply decreasing Chinese sales will doubtlessly affect Japanese automobile enterprises' overall performance in relation to rival companies from the US and Europe. Whether or not Japanese manufacturers should take a stand and encourage the government to take steps to ease tensions is still an issue of hot debate.

Gasgoo.com (Chinese) recently held a week-long survey on the issue, gathering opinions from 2,019 analysts and experts in the automotive industry.

The first question of the survey asked what the largest effect the recent anti-Japanese demonstrations have had on the country's automobile industry was. 32 percent of participants answered that the most notable influence was the sharp decrease in short-term sales of Japanese vehicles, while 31 percent said that it was increasing anti-Japanese sentiment among their potential consumer base, which will reduce their future competitiveness in the market. 21 percent said that Japanese manufacturers have lost a key opportunity to further develop in the country, which ultimately will cause them to fall behind rivals from other countries, while 13 percent felt that losing key Chinese resources was their biggest loss.

Several of the most memorable scenes of the recent protests involved incidents of Japanese vehicles being destroyed and Japanese brand dealerships being vandalized. The incidents were heavily reported by the media and their footage captured and broadcast online. Although the perpetrators of such crimes were arrested, these events have left a lasting impression in the minds of several potential car buyers, and have certainly dissuaded a number of them from purchasing Japanese brand vehicles.

In addition to the short term sales loss, Japanese manufacturers have also missed an opportunity to further development and expansion plans in the country. Japanese manufacturers have been gradually falling behind their rivals from the West. Their combined Chinese sales grew only 15 percent over the last five years, well behind the overall market sales growth rate of 25 percent. A recent study by consulting firm LMC Automotive reveals that the current Chinese passenger automobile market share held by Japanese manufacturers is now under 25 percent, seven percent points less than it was in 2008.

Overly conservative marketing strategies and slow localization plans are significant factors behind Japanese manufacturers' decline in the country. In response to this, both Toyota and Honda have announced bold plans to increase domestic production of more vehicles and increase the pace with which they introduce new models to the country. Unfortunately for them, the recent protests have forced them to put a temporary halt to their plans. The inevitable result of this will be an even larger gap between Japanese manufacturers and their competitors from other countries, which have already embarked on their own expansion programs.

When asked how long the effects of the recent protests on Japanese manufacturers' sales performances will last, survey participants' opinions were mixed. 29 percent answered that the costs inflicted by the protests will last for six months, while 28 percent said that it will continue for a whole year. The two answers combined accounted for 57 percent of all the votes. Outside of that, nine percent maintained that the effects will last three years, while 19 percent said it will continue beyond that. 15 percent were undecided.

While there are a number of reasons explaining Japanese automobile manufacturers' poor performance in the Chinese market as of late, the Diaoyu Islands dispute and the political tensions surrounding it remain the primary factors. As long as the issue is unresolved, and possess the potential of escalation, the safety of Japanese automobile owners will remain in danger. This threat to physical and property well-being is a major reason why many consumers in the country are wary of purchasing Japanese brand car. As the government takes steps to ensure that protesters do not vandalize Japanese vehicles, their consumers will begin feeling safe again. As that happens, sales should gradually recover. Because of this reason, over half of the surveys participants maintain that Japanese manufacturers' performances in the country will pick up again within a year.

Still, with the dispute as of yet unresolved, Japanese enterprises need to make some major decisions in order to ensure they don't lose any ground to their competitors. In the third question of the survey, participants were asked to vote for what action Japanese manufacturers should take to resolve the crisis. 25 percent of participants answered that they should put pressure on the Japanese government to soften its stance on the territorial dispute, while 23 percent said that they should actively take steps to promote friendship between the two countries. 19 percent responded that marking activities aimed at improving their brand image in China was the way for them to go. Finally, the two choices of increased sales activities and introduction of more models gained 13 percent of participants' votes each.

Although the three most commonly selected policy choices have no actual connection with the manufacturers' actual product quality, they could all aid in improving their brand image in the country. While automobile manufacturers' say in the Japanese government is limited, they themselves could take other steps to improve Sino-Japanese relations, which ultimately would help consumers feel safe that their vehicles will not be the target of vandalism.

In the final question of the survey, participants were asked whether or not Japanese manufacturers still have opportunities to develop in the Chinese automobile market. In response to this question, participants' answers were divided. The majority of participants, 48 percent, answered that any future growth depends entirely on whether or not Sino-Japanese relations improve. 34 percent are more optimistic, responding that they are confident that there are still plenty of opportunities to come. By comparison, 13 percent said that there would be no possibility for growth in the future. The remaining five percent were undecided.

Relations between China and Japan have always been very delicate. Japanese manufacturers have become accustomed to ignoring the political relationship between the two countries to focus on their own businesses. However, it is now becoming clear that this mindset is far from ideal, as Japanese manufacturers lack the presence needed to influence policy making in their political system. Had they mimicked their American counterparts, which are able to use their influence to lobby for policies favorable to them, they would be able to mitigate or even completely avoid the damages they are currently sustaining. If they are able to wield more influence in political circles, they could prevent similar situations from occurring in the future.