Toyota China sales tumble as islands row hits Japan Inc

Toyota Motor Corp's China sales fell about 40 percent in September from the year before, while those of rivals such as Hyundai and BMW jumped, underscoring how badly Japanese brands have been hit by a territorial row between the two countries.

Showroom traffic and sales have plunged at Japanese car makers since violent protests and calls for boycotts of Japanese products broke out across China in mid-September over the Japanese government's purchase of a group of disputed islands in the East China Sea from their private owner.

A prolonged sales hit of this scale could threaten profit forecasts at Toyota, Nissan Motor Co and others as China, the world's biggest car market, makes up a bigger portion of their global sales.

Toyota sold about 50,000 cars in China in September, a senior company executive, speaking on condition of anonymity, told Reuters on Friday. That would be down from about 86,000 in September 2011 but better than the figure reported earlier by Japan's Yomiuri newspaper, which said sales halved from the 75,000 sold in August.

The dramatic fall-off in demand for Japanese vehicles has been an unexpected boon for other foreign brands, with South Korea's Hyundai Motor Co saying on Friday its China sales climbed 15 percent to 84,188 vehicles last month.

Toyota declined to confirm the number, saying it would announce its Chinese sales for September on Tuesday.

As demand evaporates, Toyota, Nissan, Honda Motor Co and others have been forced to cut back production in recent weeks in a slowing, but still promising Chinese market.

A source told Reuters late last month that Toyota's production cutbacks could extend through November, a move that would almost certainly put the company's goal of selling 1 million cars in China this year out of reach.

"I would say it's almost impossible now," the executive said, blaming the wave of anti-Japan sentiment that has swept the country.

He added, however, that sales showed signs of recovery towards the end of last month, especially over the final weekend, providing some hope for an early comeback.

LATEST FLARE-UP IN TENSIONS

Anti-Japan sentiment across China escalated last month amid a row over a group of uninhabited islets, known as the Senkaku islands in Japan and the Diaoyu islands in China, whose nearby waters are thought to hold potentially rich natural gas reserves. They have been under Japan's control since 1895.

Demonstrators vandalised properties of Japanese companies, including a Toyota outlet in the eastern city of Qingdao that was torched, in the latest flare-up in tensions that have smouldered since the end of World War Two.

Japanese car makers have been the most visible losers, although there have been signs of the tensions affecting other sectors, with All Nippon Airways Co Ltd (ANA) saying late last month it had seen a wave of cancellations on Japan-China routes.

Semiconductor maker Rohm Co Ltd forecast a decline in orders for the second half of the fiscal year ending March, citing significant weakness from automakers.

"The second half is not looking very good, it all depends on how much impact the events in China will have," said Hidemi Takasu, managing director of R&D at Rohm, on the sidelines of the CEATEC technology trade show near Tokyo.

"We sell quite a lot to automakers so when they decide to cut production we feel the impact."

On Thursday, Mazda Motor Corp said its China sales tumbled by more than a third last month from a year earlier, providing the first concrete numbers to point to Japanese automakers' troubles in China.

A Nissan executive said on Friday he expected the protests to have affected its Chinese sales in September, but reiterated the car maker's stance that it would not alter its strategy there.

"China is a growing market," Executive Vice President Takao Katagiri told reporters in Yokohama. He added that official figures would be announced after China's mid-autumn festival holiday, which ends on Friday.

The exodus from Japanese cars has in turn helped other foreign brands. Among premium brands, Volkswagen's Audi boosted sales by 20 percent in September, BMW by 55 percent and Daimler's Mercedes-Benz by 10 percent.

The owner of a large car dealership chain in China said his Japanese brand outlets - Toyota, Lexus, Nissan and Honda - have endured anti-Japan sentiment in the past.

"But this time it feels a bit different, and I hope things will return to normal quickly as before," he said.

Especially worrisome, he added, was the notion developing among some ordinary Chinese consumers, who were not necessarily anti-Japan, that it was risky to drive Japanese-brand cars.

In some incidents last month, protesters attacked Japanese cars driving by, damaging them and in some cases beating up their drivers and passengers.

Shares of Toyota and Nissan fell on Friday, against a modest gain in the broader Tokyo market.

Nissan, whose exposure to China is the largest among Japan's top three automakers at 27 percent of projected global sales, fell 1.5 percent. Toyota closed down 1.6 percent. The Topix index rose 0.2 percent.