Toyota is planning a significant cut in production and will cancel imports into China for the month of October 2012, while other Japanese OEMs also reduce production schedules due to the political dispute over the East China Sea islands.
IHS Automotive Perspective | |
Significance | Toyota envisages a sudden drop in demand for its cars in China and has told suppliers it will stop normal Chinese production in October 2012 while it analyses the situation. Other Japanese OEMS will also reduce production in China as nationalist sentiment rises, and Japanese brands see falling sales and accumulating inventory. |
Implications | The implications for Japanese automakers and their suppliers in China depend on how quickly diplomacy can solve the current status quo between the two countries regarding the ownership of the uninhabited but mineral-rich Diaoyu Islands. |
Outlook | The outlook for Japanese OEMs in China does not augur well, with IHS Automotive forecasts expecting an immediate drop in sales and production amid concerns that the situation may extend for a longer period than previously thought. |
Japanese automakers and their suppliers face a tough future in China in the immediate aftermath of the protests that took place last week regarding the territorial dispute over the Diaoyu Islands in the East China Seas. Japanese automakers are analysing the situation and issuing new production plans for next month, with many giving their staff extended holiday periods as the country breaks for the Mid-Autumn Festival during the first week of October 2012.
Toyota to Cease Normal Production in China—Report
Toyota has allegedly cancelled plans to start normal production at its plants in China in October following the nationalist protests that have resulted in a build-up of inventory and vandalism at some dealerships in China. Toyota is expected to use the month of October to complete production that was originally slated for September, but was cancelled due to plant closures last week, according to supplier sources speaking to IHS Automotive.
International media sources, such as Reuters, Asahi News and the Nikkei, have stated that Toyota will reduce production in October. Asahi News has stated that Toyota will cancel Chinese production completely in October and cease importing any models into the country. However, IHS Automotive contacted Toyota in China and company spokesperson Xu Yiming said in an email that "the report from Reuters and Asahi News is not the truth. The local production and export will be decided upon by the market demand".
The Nikkei states that Toyota will close its main plant in Guangdong Province for an additional four days from today (26 September). The plant was originally scheduled to close for eight days for the upcoming Mid-Autumn Festival. The Nikkei says the plant will reopen on 8 October, but will run on day shifts only, thereby reducing from two shifts to one per day. At normal capacity, the plant would build 30,000 units per month.
Toyota Reduces Production in Japan
As exports to China come to a halt, Toyota will reduce production at its plants in Japan where models are built for export markets (see China: 25 September 2012: Toyota Cuts Back Lexus Production As Chinese Demand Expected to Fall). Kyodo News reports that Toyota will reduce output at its Tahara plant in the Aichi prefecture, as well as at its Miyata plant run by a subsidiary in Fukuoka prefecture. Both these plants produce the Lexus-brand models. The Miyata plant produces 1,300 units per day, but will cut production by 20% per day.
Nissan, Honda and Suzuki Plan Reduced Production Schedules
Nissan will also extend the vacation period for its workers at plants in China. The automaker will approve an extended holiday for the upcoming Mid-Autumn Festival. Normal festival dates are 1-7 October, but Nissan will add three days to this. The automaker will stop production from tomorrow and resume production on a day-shift-only basis thereafter. Honda is also planning to reduce the current two shifts to a single day shift when production commences after the October holiday, as will Suzuki, down from the normal two shifts.
All Japanese automakers in China have changed their production plans and most have temporarily halted production at some facilities in China due to rising anti-Japanese sentiment in the country (see China: 18 September 2012: Mitsubishi, Mazda, Honda, Nissan and Toyota Halt Production in China As Tensions Mount). Since then, there have been conflicting reports of Japanese OEMs restarting production. So far, Japanese automakers are working on reduced shifts across China, while plans to determine production schedules for the immediate future are being made (see China: 20 September 2012: Conflicting Reports Emerge of Production Status at Japanese Plants in China).
IHS Automotive Analysis
The IHS Automotive forecast team currently estimates that lost production and sales for Japanese automakers in China will be cut by 200,000 units this year. Japanese automakers will collectively see a drop of 200,000 units across the different brands in China, amounting to around 20% of Japanese OEM sales in China. Our outlook for 2013 sees a fall of around 100,000 units based on the situation between the two countries finding a peaceful resolution in the immediate future. If the situation spirals out of control, then IHS Automotive will forecast differently.
Nissan, Toyota, Suzuki and Mitsubishi were seeing growth in sales in China, but the next few months of 2012 will likely see a severe drop, which will affect their forecast sales for this year.
Country | Sales Group | CY 2010 | CY 2011 |
China | Honda | 651,679 | 623,276 |
Mazda | 241,830 | 226,563 | |
Mitsubishi | 60,814 | 63,266 | |
Nissan | 734,029 | 905,778 | |
Suzuki | 279,762 | 302,400 | |
Toyota | 856,701 | 891,454 | |
Total | 2,824,815 | 3,012,737 | |
Source: IHS Automotive | |||
IHS Automotive sees lost production amounting to around 200,000 units in the months of October, November and December 2012, given the current scenario where Toyota is cutting production at its plants in China and keeping only marginal production alive to finish the production slated for September. Other OEMs will also work at less than full production.
Current Production Downgrade | ||||||
Facilities | Key Vehicles | October | November | December | Total Lost | |
Toyota | Tianjin | Corolla, RAV4, Reiz, Royal Crown, Vios | X | 80% | 90% |
|
Chengdu | Coaster, Land Cruiser Prado | X | 80% | 90% |
| |
Changchun | Corolla, Land Cruiser, Prius | X | 80% | 90% |
| |
Guangzhou | Camry, Yaris, Highlander | 80% | X | 90% |
| |
Toyota Lost Volumes | 62,959 | 46,124 | 9,353 | 118,436 | ||
Honda | Wuhan | CR-V, Civic, Elysion, Spirior | 80% | 90% | 90% |
|
Guangzhou | Accord, Crosstour, Fit, City | 80% | 90% | 90% |
| |
Honda Lost Volumes | 10,512 | 5,256 | 5,256 | 21,024 | ||
Nissan | Huadu | Tiida, Sylphy, Livina, Sunny, Qashiqai | 80% | 90% | 90% |
|
Zhengzhou | Qashqai, X-Trail, Venucia | 80% | 90% | 90% |
| |
Nissan Lost Volumes | 21,054 | 10,988 | 10,988 | 43,030 | ||
Mazda | Nanjing | Mazda 3, Mazda 2 | 80% | 90% | 90% |
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Changchun | Mazda 6, Mazda 8 | 80% | 90% | 90% |
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Mazda Lost Volumes | 4,002 | 2,001 | 2,001 | 8,004 | ||
Total Japanese OEM Lost | 98,527 | 64,369 | 27,598 | 190,494 | ||
Source: IHS Automotive | ||||||
The above is based on information available today where the assumption remains that the governments of China and Japan will find a way to halt tensions. However, should the situation spiral and Japanese OEMs start cutting greater production, lost volumes will significantly increase. The future of Japanese brands in China depends on how the governments work together to limit the damage to bilateral trade.