US Automakers to Benefit from Anti-Japanese Sentiment
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As you might know, there’s an island dispute between China and Japan. Many Chinese (as well as the Chinese government) are upset about the Japanese claim on a few (oil rich) islands near Taiwan. Both China and Japan claim the territory and the Japanese government recently purchased those islands to strengthen its claim. This fueled anti-Japan sentiments in China so much that many Chinese consumers are boycotting Japanese products and the Chinese government even allows public protests against Japan.
The reason for this high degree of public anger against Japan is what Japan has done in China during WWII without ever offering a decent apology, that’s part of the reason why in Japan the protests against China aren’t that disruptive. Long story short: many Chinese people are ticked off at Japan and refuse to buy their products. This is, as sad as it may be for some, good news for US automakers GM (NYSE: GM) and Ford (NYSE: F), as they could really use extra sales in China to compensate for the bad situation in Europe.
Japanese automakers such as Toyota (NYSE: TM), Honda and Nissan will likely suffer a sales drop of 1.6 million vehicles in China over the next 12 months if the current situation persists, says ING analyst Lindsay Coburn. These sales will obviously go to automakers from the US, Europe and various Asian countries. GM's 2011 market share in China was 13.6%, when correcting for Japanese market share (as the lost Japanese sales will be divided amongst non-Japanese automakers that have a combined market share of 80%) GM has a market share of 17%. If GM can capture its fair share of 17% of the 1.6 million potential, the extra number of GM vehicles sold would amount to 272,000. As Ford has a smaller presence in China, it could count on roughly 3% of the Japanese sales loss which amounts to a 50,000 increase in unit sales for Ford.
What might also be encouraging for GM is the fact that the position of world’s biggest automaker is back within its reach as Toyota is losing a large part of its 6.5% (2011) market share in China. This is painful for Toyota as it was growing fast with a 130% sales increase in the first half of this year. To Ford, these events in China could be an opportunity to significantly expand its sales there as its Ford-brand market share is still at a modest 2.5%. Until now, Fords expansion strategy in China caused it to lose money there, but this could turn around quickly when it can use its increasing production capacity in China for the Chinese market.
There’s another factor playing a role in this: many Japanese companies have already temporarily stopped producing in China because of the anti-Japan mood there. The production in China has picked up, but the situation can easily get out of control again. As Japanese automakers produce many cars in China, this could potentially cause big disruptions in their supply chains, hurting global sales. Toyota and Nissan say they need to cut back heavily on production because of lowering demand in China, together producing 20,000 less cars in China per month than they otherwise would. The fact that they do this so rapidly and heavily instead of decreasing the production a little, might indicate they think their car sales in China won’t pick up soon.
What might also be interesting to know, is there is another island dispute involving Japan with South Korea. This hasn't escalated yet, but it comes to the attention of the Korean public as the China-Japan dispute is making headlines around the world. The Korea-Japan dispute however, is less of an issue for Japanese or US automakers, as imported cars only account for 10% of total car sales in Korea. Moreover, European car makers are the only ones with decent market shares there, in contrast with the top Japanese car seller Toyota which has a market share of about 0.4% in South Korea.
Of course, the Japan-China dispute could be solved by next week, but it’s unlikely that will happen. Also, the anti-Japan sentiments in China, once fueled, will take some time to cool off after the dispute over the islands is solved. This means that US automakers will most probably benefit from shifting consumer demand in China.
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