Will Japanese Automaker’s Recovery Path Be That Easy?

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Automakers are experiencing increased vehicle sales which improved 8.2% to about 1.79 million units in November compared to the year ago figure in China, the world’s largest auto market. On the whole, 17.49 million vehicles were sold in the first 11 months and the China Association of Automobile Manufacturers (CAAM) expects the year to wind up with total auto sales of over 19 million units.

The sales of Japanese branded cars rose 72.2% to 170,200 units in November compared to the previous month. This came as a sign of relief to the automakers that witnessed a dramatic decline in their auto sales since demand for Japanese brands slumped as an effect of the territorial dispute between China and Japan. However the sales fell 36% compared to the last year November figure, but the rate of decline has mellowed which is good news for shareholders. Major automakers such as Toyota (NYSE: TM), Nissan and Honda (NYSE: HMC) reported softened sales numbers as expected, but the rate of fall was less.

The recovery path
The passenger car sales for Japanese makers tumbled 36% but were much lower that the steep 59% and 41% fall in October and September, respectively. Another sign of gradual recovery was a rise in their market share which improved to 11.65% in November from 7.61% in the previous month.

Toyota reported a 22% drop in its passenger car sales for November compared to a year ago period. This was milder than its October and September decline of 44% and 50%, respectively. A company executive of Toyota says that the automaker may require as much as a year to return to normal sales levels after suffering such a steep fall. Mazda Motors also witnessed a similar story of a 30% fall in November relative to the previous month’s 45% drop.

Honda, which experienced a severe drop of 40.5% a couple of months back, has been steadily recovering with improving revenue and higher number of customers in the mainland. The company delivered 41,205 vehicles during the month which is a 29% fall over last year. Nissan, which holds the largest market share of all the Japanese carmakers in China, is experiencing slower recovery compared to other fellow players. It sold 79,500 units in November, a 30% fall in comparison to the last year though a slight improvement from the previous month’s dismal numbers.

Things are gradually coming back on track for these auto giants. It will take some time for Chinese consumers to regain confidence in the Japanese brand and start buying more of their cars. While the Japanese players are on their recovery path, other automakers are making hay.

Other global player: making hay while the sun shines
The biggest foreign carmaker in the mainland, General Motors (NYSE: GM), posted an increase of 9.7% by selling 260,018 units in November. Sales for the Detroit giant were primarily driven by its Chevrolet, Cadillac and Buick brands. So far in 2012 the highest selling automaker in China has sold 2.59 million vehicles. The company plans to invest $1 billion to build a third manufacturing unit in China and attain its target of manufacturing 2 million vehicles in the next three years. In addition, to ensure that it maintains its leadership position and keeps attracting buyers, the US automaker shall introduce a new Cadillac model every year from 2016 onwards.

The second Detroit player and the second largest automaker in US, Ford (NYSE: F), had another spectacular month of sales which went up 56% to 67,505 units. This was mostly attributable to the Focus compact car. Chinese consumers are now slowly taking notice of Ford cars not just as a substitute to Japanese brands such as Toyota or Nissan, but also as a value purchase. This is evident from the fact that Ford’s sales surge in China did not get affected adversely from the sales rebound of Japanese automakers. The Detroit player continues to see strong consumer demand in the Chinese market. Other than the luxury Lincoln model which is slated for 2014, the company intends to launch 15 new models here in the coming three years. It is quite possible that China would become a decent revenue contributor of Ford in years to come.

In the luxury car segment Bayerische Motoren Werke AG sales jumped 62 percent to 31,090 units, while Daimler AG’s Mercedes- Benz accounted a 6.6% fall in deliveries and reported a sale of 16,876 vehicles in China.

My takeaway
Car sales have been recovering in the mainland and a recovery in sales of Japanese branded vehicles suggests that consumers do want these cars. The rebound from the consumer backlash gives a positive future outlook for these automakers that suffered severely in the past few months. However, it would be interesting to watch how the increased presence of the other automakers change the dynamics of the Chinese auto market. Will the Japanese carmakers see a smooth recovery path, or witness road bumps in the form of increased competition?


liveinvestor has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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