| BEIJING/SHANGHAI, Sept 18
BEIJING/SHANGHAI, Sept 18 A year after their
China sales were battered by protests in a territorial dispute,
Japan's big automakers are finding it tough to bounce back in
the world's biggest market. Demand for cars is rising fastest in
provinces where anti-Japan sentiment historically runs deepest -
a legacy of Japanese occupation around World War Two.
In relatively more Japan-friendly parts of southern China
such as Guangdong, Toyota Motor Corp, Nissan Motor Co
and Honda Motor Co are returning to sales
levels near those seen before a diplomatic row last September
over a group of rocky, uninhabited islets in the East China Sea.
A tougher challenge for the Japanese brands are the coastal
and northeastern provinces such as Shandong, which overtook
Guangdong as China's biggest car market in 2009, Zhejiang and
Jiangsu - part of a large swathe of the country that Japan
invaded and occupied during the late 1930s.
It's in these faster-emerging markets that the Japanese are
struggling to win back Chinese hearts and wallets.
Over the past decade, Japanese automakers set up a strong
base in Guangdong, investing heavily in factories that now form
an assembly cluster fed by Japanese parts suppliers in the area.
According to industry consultant R.L. POLK & Co, Japanese cars
had 41 percent market share in Guangdong in 2011, though that
has dipped a few percentage points since last year's dispute.
But northern and eastern provinces are now eclipsing
Guangdong. POLK says Guangdong has been overtaken by both
Shandong and Jiangsu in car demand, and its third-ranking is
under threat from Zhejiang and Hebei, which was also occupied by
Japan over 70 years ago.
"It's a smoldering brush fire today, but could turn into a
big five-alarm fire if Japanese automakers don't deal with it,"
said Yale Zhang, head of Shanghai-based consultant Automotive
Foresight. "As demand in mega-markets like Beijing slows
significantly, Toyota and other Japanese brands need to
penetrate even deeper into the Chinese market."
Protests erupted across China a year ago after Japan
nationalized some of the disputed islets - known as Diaoyu in
China and Senkaku in Japan - by buying them from a private
owner. As passions ran high, thousands of Japanese brand cars
were vandalized, and dealerships were attacked by mobs in
Qingdao, a major city in Shandong, among other cities.
In a widely-reported incident in mid-September last year, a
51-year-old Chinese man with his family drove his Toyota Corolla
past an anti-Japanese demonstration in Xian in Shaanxi province.
The car was surrounded by protesters and the man was so badly
beaten he was partially paralyzed, and his car destroyed.
Sales of Japanese-branded cars plunged by more than half in
September and October from year-earlier levels, and remained
weak well into the first half of this year.
Japanese sales are picking up in parts of China, especially
in the south and southeast, but sales executives say recovery is
frustratingly slow in Jiangsu, Anhui and Shaanxi. A Nissan sales
executive based in Guangzhou said the attack on the driver in
Xian had been especially damaging as it scared Chinese buyers
away from Japanese cars.
"Recovery in Shaanxi is the slowest for us," the executive
said, asking not to be named as business is still sensitive to
the issue. "We also have to deal with negative campaigns by
dealers representing Western brands," he said, referring to some
local dealers who tell customers it's unpatriotic or unsafe to
own a Japanese car in China.
Song Fangjie, a 28-year-old construction supervisor from
Jinan, Shandong's provincial capital, said he liked Japanese
cars' fuel economy, but opted for a Volkswagen for
its safety. "If Japanese car makers offer better service, I
might think about buying one," he said, though he recounted how
a friend of his was refused service at a gas station as he was
driving a Japanese car.
At Toyota, some executives question whether it's wise to
pour resources into competing in these hostile markets.
"I think we're much better off focusing on more friendly
southern China at this point," said one senior Toyota sales and
marketing executive, though he added the company has yet to
finalize its approach. He stressed that dealer location was not
a factor when it comes to allocating new vehicles and providing
marketing support, but he said South China would be a better
testing ground to try out new marketing programs such as
maker-certified used cars and vehicle-leasing.
Takanori Yokoi, a Beijing-based spokesman, said Toyota was
focusing on the tougher, faster-growth, provinces, rather than
avoiding them. He noted the opening of a Toyota China branch
this year in Nanjing, Jiangsu's capital - and the site of a
massacre under Japanese occupation in late-1937 - and has
expanded there, also opening a wholly-owned technical center in
Yang Liaoliao, a 25-year-old bank accountant from Qingdao,
the home of Tsingtao beer in eastern Shandong, said she chose a
German car. "I read reports and saw experiments online saying
that Japanese car makers save materials to make their cars
lighter, so they're maybe not as safe."
"Unlike people in big cities like Shanghai or Beijing, we're
more influenced by traditional Confucian culture, which makes us
more conservative. When it comes to buying expensive items like
cars, anti-Japanese sentiment won't play a big role,' she said.
Toshiaki Mikoshiba, president of Honda's China joint venture
with Guangzhou Automobile Group Co ,
recognizes the importance of the emerging provinces, but says
his firm is not taking specific steps to take on the challenge.
"Our cars are based on Honda's technology, but are made and
sold by Chinese people here in China," he told a news conference
in Shanghai last week. "We've planted our roots in China. We
would like the people to understand our steady efforts."
Nissan, however, is pushing aggressively into Shandong,
Jiangsu and other 'tough' provinces, with its "100 Cities"
project - an initiative it began in 2011 to raise its presence
in some 130 smaller 3rd- to 5th-tier cities across China. Nissan
reckons around a fifth of the revenue from those cities comes
from Shandong and neighbouring Hebei.
As part of the "100 Cities" program, Nissan takes a mini
auto show to rural cities on a big trailer - with around 3,000
such roadshows a year - offering customers who have no Nissan
dealer nearby a chance to learn about its product line-up and
technologies, and to test drive some new models.
The company also late last year began allowing prospective
buyers to drive Nissan rental cars - many of its dealers operate
rental car businesses - for up to two days free of charge, if
they eventually opted to buy a Nissan model. It also said it
would offer compensation of up to 200,000 yuan ($32,700) to
cover any injuries to those in a Nissan car resulting from
anti-Japanese sentiment, as well as repairing and replacing any
of its cars written off in any protests.
Nissan has stepped up those efforts this year as it seeks to
regain footholds in China, the executive said - noting demand
for Nissan cars in Shandong, for example, is at 95 percent of
"Shandong and those other provinces are tough markets, but
we have objectives and can't turn away from it," the executive
said, referring to Nissan's mid-term plan to sell 2 million
vehicles a year in China by 2016, up from 1.18 million last
year. "We can't keep relying on South China."