The recent surge in anti-Japan protests in China means that American and European car manufacturers hold a genuine chance to witness an increase in their Chinese sales, in what will be a zero sum game given that Japanese manufacturers are expected to see deep cuts in their sales figures.
The 81st anniversary of the Manchurian incident, coupled with the tension that rose after Japan announced to buy a group of disputed islands in the East China Sea, has led to the rise of anti-Japan sentiments in China. Some Japanese auto plants and dealerships have been vandalized or set on fire in China. In these protests, Toyota (TM), Nissan (NSANY.OB), Honda Motors (HMC), the three biggest Japanese auto manufacturers, have faced a major shortfall in demand and are likely to face more declines in the near future. Sales of Suzuki Motor Corp, Mitsubishi and Mazda have also been hurt. The protests are expected to affect Japanese automakers' sales, more than last year's tsunami.
Before we discuss the stocks involved, individually, it is imperative to understand that the economies of Japan and China are interdependent. China is Japan's largest trading partner, by a huge margin; the country accounts for 20% of Japanese trade, almost double that of the second largest partner, the U.S.
On the other hand, Japan is China's second largest trading partner after the U.S., accounting for 9% of overall trade. However, many still believe that Sino-Japanese political ties may only have a limited impact on the economies of both the countries, as they are both driven by many factors other than mutual trade.
Following shows the market share of the prominent JVs in China:
Nissan is on the top of the list of affected Japanese brands due to its strategy of significantly expanding production in China. China accounts for about 30% of the company's profits. Earlier on in the year, Nissan announced to spend around $7.8 billion in investments to raise its units sold from 1.3 million to 2.3 million in China by 2015. However, these plans seem to be in disarray after the protests. Nissan has halted its production between September 27 and October 8, given the current market situation.
Toyota, Nissan and Honda accounted for four of the 10 best selling SUV models in the first eight months of this year. However, the situation will not be the same in the near future. Therefore, Toyota will have to adjust its production accordingly. According to Toyota President Akio Toyoda, the decline in Japanese car sales will extend into next month as well i.e. October. Toyota has not given the exact percentage of a cut in its production plans. Toyota, along with its Japanese partner, sold 900,000 cars in 2011 in China. It gets 17% of its revenues from China. In its expansion plans announced some time earlier in the year, Toyota aimed to double its Chinese sales to 1.8 million by 2015 by introducing at least 20 new models.
Honda gets 15% of its revenues from its Chinese operations. Considered to be Japan's third largest carmaker, Honda, in April, announced its plans to double its deliveries in China by 2015. This may not be possible in the current circumstances as Honda has lost much of its market share to the Hawtai Motor Group of China, which recently announced that its SUV outsold Honda's CR-V by more than 50-to-1.
General Motors (GM)
GM gets 10% of its sales from China. Despite a weak Chinese economy, a YoY rise of 7.3% in GM sales (Chinese) in August shows that the company is benefiting from the anti-Japan protests. GM sold a total of 220,996 units this August. GM currently enjoys a market share of 14.5% in China. The company forecasts the Chinese market to be as large as 30 million by the end of 2020. Last Friday, GM's sales topped 2 million in China, which is its third consecutive year of achieving this milestone. However, this time, GM has achieved the number earlier than the last two years, as it experienced a sales increase of 11.2% YTD. GM holds a genuine chance of building upon the current situation, through its joint venture with the Buick, Chevrolet, Opel, Wuling, Baojun and Jiefing models.
Ford, through its Focus, Mondeo and Egde models, is also benefiting from the situation. The company made record sales in August, which were up 39% YoY, by selling 48,631 vehicles in China. The company is aiming to increase its production to 1.2 million by 2015. The YTD sales have been 368,513 vehicles. It will be important to see how Ford builds upon its current market share of only 2% in China.
The company has sold 1.49 million cars in China YTD. It witnessed a 10% rise in sales in August, as the Japanese auto-manufactures struggled with declining sales numbers. Its Audi brand is considered to be a hit in China. Under its Chengdu plant operations and a JV with Shanghai Volkswagen, the company is ramping up its production of cars to meet increased demand in the near future.
Collectively, Japanese cars have dominated the Chinese market since 2005. However, this year, the market share of German models is expected to be 22.5%, which is more than the collective 22% market share of Japanese cars, according to the projections of China's Passenger Car Association. China is the world's largest auto market with 18.5 million sales last year and expected sales of 20 million by this year's end. According to Cui Dongshu, the deputy secretary general of the Passenger Car Association, the repercussions for Japanese car manufacturers are very serious and will last longer compared to 2010. In this situation, GM, Ford and Volkswagen seem to be the main beneficiaries.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.