Mitsubishi, Mazda, Honda, Nissan and Toyota Halt Production in China As Tensions Mount

Japanese Automakers Close Plants

Japanese automakers have announced temporary plant closures in China amid rising tensions between Japan and China regarding the ownership of the uninhabited but mineral-rich Diaoyu Islands in the East China Seas. Kyodo News reports that Honda and Mazda have halted production at their plants in China: Honda has halted production at five plants—three in Guangzhou and two in Wuhan—beginning today (18 September) for two days, while Mazda has closed its assembly plant in Nanjing in Jiangsu province for the rest of the week. Reuters has reported that Toyota will halt production at some of its plants in China, while Mitsubishi Motors will halt production at its joint-venture (JV) plant with Guangzhou Auto, and Nissan has temporarily suspended production at its plants in Guangzhou and Zhengzhou.

Dealerships Attacked

In addition, dealerships and Japanese- brand cars have been targeted across China. Severe damage was reported over the weekend in some of the major Chinese cities, including Shanghai, Beijing, Guangzhou and Qingdao, where dealerships and plants were sabotaged. In the coastal eastern city of Qingdao, a Honda dealership was among those attacked, leading Honda spokesperson Natsuno Asanuma to state that Honda dealers across China are now not able to take orders for new cars. In Shanghai, a Honda Civic car was set on fire, reportedly by its owner, in protest against Japan's occupation of the Diaoyu Islands. "Our dealers are not in a position to receive car allocations currently," Honda spokesperson was quoted as saying yesterday.

Toyota has seen its dealerships attacked in north-eastern Shandong province and has since announced a halt in production. Many more dealerships have been attacked across China, with reports of drivers of Japanese cars being beaten and cars attacked in cities such as Xian.

Government-owned newspapers, such as the China Daily and the People's Daily, highlight strong anti-Japanese sentiment. The China Daily reports, "Many Japanese businesses will shut operations on Tuesday (18 September), the anniversary of Japan's invasion of north-east China in 1931, in a precautionary move ahead of possible protests against Tokyo's recent move to "buy" China's Diaoyu Islands [after] the worst outbreak of anti-Japan sentiment in decades was seen in protests over the weekend." IHS Automotive has contacted Toyota and Nissan in China, but emails have not been returned, and it is likely that following the plant closures, the offices of the Japanese automakers are also closed today.

Suppliers Affected

Meanwhile, electronics supplier Panasonic's factory has been attacked in Qingdao, forcing it to close too. As a result, other suppliers are likely to close their plants to avoid trouble. Automotive supplier Omron Corp has closed its plant in Guangzhou.

Lost Production and Sales for Japanese Auto Companies

In August 2012 Japanese automakers saw the beginnings of a fall in sales in China following the dispute over the Diaoyu Islands. However, this was also thought to be partially due to an increase in sales for Japanese automakers after months of low sales and production due to the earthquake and subsequent tsunami that hit Japan in March 2011, which caused widespread damage to Japanese OEMs' supply chain (see China: 17 September 2012: China and Japan Feel the Pressure Despite Positive August Market Growth—CAAM). In addition, the large number of recent recalls of Japanese cars is beginning to dent consumer confidence in Japanese car brands in China, according to IHS Automotive analysts. However, this mounting political tension is unprecedented in recent times and unless the situation is brought under control politically, Japanese OEMs and suppliers in China will see significant damage to revenue. China is the biggest market for some Japanese OEMs and a loss of sales will significantly affect the automakers' global revenues. Sales in August 2012 have shown some effects of the tension already, with Nissan claiming lost sales as a result (see China: 7 September 2012: Japanese Automakers' Chinese Sales Affected by Political Disputes, Claims Nissan).

Outlook and Implications

IHS Automotive's light vehicle production forecast manager, Boni Sa, says, "If retail sales from the dealer side don't recover, it could be very difficult to return to the normal running rate level on the production side." The dealers are already under huge pressure to maintain sales in China and will almost certainly be negatively impacted. If the situation is not rectified soon, production could take a huge hit. IHS Automotive's production forecast team has evaluated the extent of lost production and, given the current information regarding plant closures, the total drop in production is forecast at around 9,734 units for this week.

Toyota

Lost production for Toyota will amount to 1,954 units per day. At its plant in Tianjin, the automaker makes 1,800 units per day, while at the Chengdu plant a total of 118 units are assembled per day. Meanwhile, the Changchun plant is estimated to make 36 units per day, bringing the combined lost production for a single day to just under 2,000 units.

Honda

Honda makes an estimated 1,130 units at its facility in Wuhan per day and, given that the automaker has said it will close for two days, estimated lost production is 2,260 units from its Wuhan facility alone. At the Guangzhou facility, the automaker assembles an estimated 1,317 units per day, bringing total lost production this week to 6,024 units.

Nissan

Nissan assembles around 2,260 units per day at its Huadu plant and is expected to close for two days, giving total lost production of 4,520 units. In addition, the Zhengzhou plant has around 726 units per day; combined, Nissan will see around 5,972 units lost this week from two days of plant closures.

Mazda

Mazda has said its plant in Nanjing will close for the rest of the week. The automaker assembles 250 units per day at the plant, bringing lost production to 1,000 units if it remains closed for four days this week.

Total lost production for today alone (18 September) for Japanese automakers in China is estimated at 7,637 units.

The BBC has reported that "Japanese businesses shut hundreds of stores and plants across China, and Japan's embassy in Beijing again came under siege by protesters hurling water bottles, waving Chinese flags and chanting anti-Japan slogans evoking war-time enmity". The respective governments will need to tread carefully and calm tensions, but Japanese firms in China will see an immediate and inevitable loss in revenues as a result.