China TDWU: Toyota and Other Japan Automakers Slump Again in October, is the End in Sight?

2012 Subaru BR-Z

Problems for Toyota continued in China in October, with the largest cuts in production in over a decade for the embattled automaker. The cuts were necessitated, in order to ease pressure on dealerships to move more units, as they’ve had their hands full lately with people vandalising their facilities. Even though stockpiles of vehicles have reduced drastically over the past couple of months, dealerships nationwide have continued to struggle to move units.

 

Moreover, Toyota announced that production in China for October dropped by a staggering 61 percent to 30,591 units. This leaves Toyota with a market share of 14 percent, as opposed to having an 23 percent share in September.

Toyota led all Japanese automakers in this regard…and it highlights the ongoing tension over Japan purchasing a group of uninhabited islands in the East China Sea, that are rich in natural resources. Never mind the fact that China considers the islands as a part of their own…coupled with the timing of it all, and you can see why the Chinese are extremely upset by all of this.

It appears that the protesting and violent rioting is beginning to die down now, but Toyota and other Japanese automakers should not be so quick to declare that the worst is over. Some analysts have pointed to signs that things are improving, such as things like sales have begun to pick up across the board, as well as automakers like Honda rolling out new vehicles.

I’ve been reading reports that Toyota claims that production will resume to normal capacity in July 2013, and that they are bullish in their production outlook for ’13 and beyond. How so? A couple of big newsworthy items:

Toyota is set to launch two China only car brands: Following in the footsteps of other automakers in China (Chinese regulations mandate that foreign automakers partner with local automakers, in order to sell their vehicles there), Toyota is launching two car brands that are specific to China. Although details are scarce at this time, it is assumed that these vehicles will also be for other emerging markets, such as India, Africa, and South America. If so, I look for at least one of them to be some sort of rugged 4×4, as those types of vehicles are desperately needed for those countries with substandard infrastructures. Toyota will be developing and producing these vehicles along with their Chinese partners FAW Group and Guangzhou Automobile Group.

Toyota has confirmed the production of the Dear-Qin small car for China: Production is scheduled to begin for the car that will replace the outgoing Yaris. As far as selling this vehicle in North America, it remains but a rumour at this time. Like the aforementioned two China-only car brands, Toyota is looking to have this vehicle bolster both their lineup, as well as their sales.

Targeting first-time buyers, Toyota will need to have a flawless launch to battle with the likes of Chevrolet’s Sail and Nissan’s Tiida, the top two heavyweights in the entry-level division. On the American side, Toyota is turning over production duties to Mazda to replace the Yaris stateside, as sales have not met expectations.

There is some positive news for smaller Japanese automakers like Subaru…they’re seeing an increase of sales, due to increased incentives (10,000 yuan, or approximately $1,600) and being less of a target by Chinese protestors. In fact, they even beat Toyota last month in sales! It’s interesting to note that Subaru is the only Japanese automaker without a production facility in China.

Moreover, not only has their market share increased 28 percent (at the expense of others), but they’re actually enjoying waiting times of six months for the BR-Z sports car, and two months for the Impreza hatchback. Very impressive indeed.

As far as producing vehicles there, as oppose to their current strategy of producing vehicles for export from Japan (despite the 25 percent tariff placed on imported vehicles), it would require a local joint venture…to which they attempted to secure with Chery. However, since Toyota (which has a 20 percent stake in the Fuji Heavy Industries’ automotive company) already has two JVs with local Chinese companies, that would exceed the regulatory guidelines, according to the Chinese government. For some reason, they equate Toyota’s partnerships with Subaru, so they have yet to grant Subaru one in order to begin producing vehicles there. No word yet if Subaru still plans to build a production facility, but analysts have stated numerous times that the Chinese market is “too big to ignore”.

With all of that being said, Japanese automakers are still optimistic that production will resume normal levels soon. Are they a little too optimistic? It greatly depends on whether or not the tensions between the two countries will subside…so stay tuned, as this is definitely not the last chapter in this story.

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