Toyota, Nissan trim China output in wake of protests

BEIJING Tue Sep 25, 2012 10:54pm EDT

An employee inspects a compact car ETIOS as he trains at the assembly line of the new plant of Japanese automaker Toyota Motor Corporation in Sorocaba, 100km (62 miles) west of Sao Paulo, August 9, 2012. REUTERS/Paulo Whitaker

An employee inspects a compact car ETIOS as he trains at the assembly line of the new plant of Japanese automaker Toyota Motor Corporation in Sorocaba, 100km (62 miles) west of Sao Paulo, August 9, 2012.

Credit: Reuters/Paulo Whitaker

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BEIJING (Reuters) - Japanese automakers Toyota Motor Corp (7203.T), Nissan Motor Co Ltd (7201.T) and Suzuki (7269.T) are curtailing production in China in the wake of anti-Japan protests that shuttered dealerships and darkened their sales prospects in the world's top car market.

Nissan, Japan's top automaker in China, said it would halt production at a joint venture in China starting on Thursday, three days earlier than planned, and extending through next week's national holiday period.

A Toyota executive in Beijing, who spoke on condition of anonymity, said it was "likely" the automaker would cut output in China in the coming weeks. A Toyota spokeswoman said the company had no immediate comment.

Suzuki, meanwhile, said it had stopped one of two shifts that it normally runs in China.

Production slowdowns are a normal feature of the auto industry in mature markets like the United States, where they are used to keep inventories from ballooning and avoid pressure for automakers to offer deep discounts that erode profitability.

But the steps by the Japanese automakers to cut output in China are an anomaly in a market that has driven the industry's global growth over the past decade and where most automakers had been adding capacity until China's economic slowdown in recent months caused production to outpace sales.

LINGERING RESENTMENT

The latest auto production adjustments come on top of general cutbacks Japanese auto makers had been making prior to the disruptions caused by anti-Japan protests.

Japan and China are at odds over a group of islands in the East China Sea, called Diaoyu in China and Senkaku in Japan. A decision by Japan to buy the islands from private owners sparked the latest flare-up in tensions between the Asian neighbors that has smoldered since the end of the World War Two.

Executives and analysts have said lingering resentment in China could hurt demand for Japanese cars, consumer electronics and other goods at a time when slowing growth in Asia's biggest economy may weigh on overall consumer spending.

Bank of America Merrill Lynch analyst Bin Wang said his checks with Japanese auto dealers in Guangdong province since the protests showed that sales were down on average by 60 percent. The slowdown had boosted sales for German, American and Korean brands, he said.

"Dealers believe that the current sentiment on Japanese-branded cars could be longer than the previous island dispute in October 2010," he said in a research note issued on Friday.

China's economy grew at its slowest pace in more than three years in the second quarter. A factory survey in August showed China's manufacturing sector contracted at its sharpest pace in nine months.

The Asahi newspaper reported on Wednesday that Toyota would completely halt China production in October and stop all exports to China from Japan. The Toyota executive said that report was not accurate.

The Nikkei business daily said Toyota would add four days to a planned eight-day holiday closure at its mainstay plant in Guangdong province, which builds 30,000 cars a month, beginning on Wednesday and will operate only one shift instead of two when it reopens in October.

A Toyota spokeswoman said she could not comment but said the company would issue a statement later on Wednesday.

TOYOTA TARGET AT RISK

Toyota sold about 900,000 vehicles in China last year. It had set a target of 1 million sales this year -- a target that now may be at risk -- and a long-range goal of 1.8 million by 2015.

On a combined basis, Japanese auto makers had a roughly 19 percent share of China's passenger car market in August before the protests. That was down from 20 percent in July, according to China Association of Automobile Manufacturers.

Production at other Japanese companies has yet to return to normal more than a week after the biggest demonstrations, which at times degenerated into violent attacks on Japanese run stores and factories in China.

Panasonic, which closed three factories that were damaged in the protests, reopened the last one on Tuesday, but production at that component factory has yet to return to normal, a spokeswoman for the company confirmed.

(Additional reporting By Tim Kelly, Chang-Ran Kim and Kentaro Sugiyama in Tokyo, Maria Ajit Thomas in Bangalore, Fang Yan in Beijing; Writing by Kevin Krolicki; Editing by Sriraj Kalluvila and Ken Wills)

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