Impact of Japan quake on car makers may extend to China's luxury car segment.
Toyota Motor, Honda Motor and Nissan Motor see China's wealthy consumers as a great opportunity for their top-end brands. Nissan, for one, doubled sales of its Infiniti cars to nearly 11,000 units in 2010 and aims to double sales again this year, according to analysts.
Such goals could now prove impossible to meet.
Unlike other foreign car makers, the top Japanese manufacturers export their luxury cars to China rather than producing them locally. With Toyota, Honda, and Nissan having shut all of their plants in Japan after the earthquake and tsunami, exports to China will suffer.
“The Japanese are already way behind the German brands. The earthquake will hurt their luxury brands further as they don't make them here in China,” said Klaus Paur, managing director of Greater China at Synovate Motoresearch.
China, already the world's biggest car market, boasts one of the fastest growing luxury car segments. Automakers sold roughly 500,000 thousand high-end cars in China last year and the size could be easily double in the next five years, according to some estimates.
For companies such as Toyota and its high-end Lexus brand, selling to China's newly rich, who are fuelling demand for luxury items from Gucci handbags to Rolls-Royces, is a top priority.
“Lexus has been the best-selling luxury brand in the United States for years,” said Yale Zhang, managing director of Automotive Foresight (Shanghai), an industry consultancy.
“Gaining market share in China is very important for Lexus as it could be its second largest market in five years.”
But Japanese car makers have lagged their German competitors.
The world's high-end car makers, from Audi AG to Bayerische Motoren Werke AG , have racked up strong sales in China. Daimler AG's Mercedes-Benz sold 147,670 units in China last year, outpacing the 70 per cent growth of the premier car segment.
Sales of BMWs came to 168,998 cars in 2010, exceeding the company's own target. Audi sold 227,928 units, up 43 per cent from a year earlier.
By contrast, Toyota sold roughly 48,000 Lexus cars in China, a fifth of industry champion Audi, and Honda sold a mere 4,000 units of the Acura, its topline model, according to data provided by Synovate Motoresearch.
Toyota, Honda and Nissan produce their mass-market models, including the Camry, Accord and Teana, in China. Production of those vehicles will be largely unaffected by the disaster unfolding in Japan, said analysts.
All three companies have a massive supplier base in China which provides at least 80 to 90 per cent of auto parts locally.
“There are hundreds of parts in a single vehicle. Some auto makers may also get parts from Japanese suppliers in China, but they could be easily replaced as there are so many alternative out there,” said Cao He, a veteran analyst with Minzu Securities.
But their strategy of keeping production of premier models in Japan has forced them to charge higher prices and has helped keep their market share low.
“There has been talk about Toyota localising Lexus production in China for years,” said Zhang. “I am sure Toyota will make up its minds someday, it's just a question of when.”
Until then, they'll face stiff competition from the German automakers, which make select topline models in China assembly plants. Audi A6, made at its venture with Chinese state automaker FAW Group, has long been the favourite car of senior Chinese state leaders.
According to Goldman Sachs, the profit impact of stopping car production in Japan for one day would be about 6 billion yen ($73.3 million) for Toyota and 2 billion yen for Honda and Nissan.
Impact of Japan quake on car manufacturers:
- Honda Motor Co said it planned to suspend all production in Japan at least until March 20. Honda's domestic plants were all closed on Monday except for a motorcycle plant on the southern island of Kyushu, which was shut on Tuesday. Honda manufactured 69,170 cars in January in Japan, where it made 24 per cent of its cars.
- Mazda Motor Corp said it would extend the suspension of production at two plants in southwestern Japan to March 20, but had not made a decision about how to proceed after that.
- Nissan Motor Co said it stopped production at all four of its car assembly factories in Japan and was trying to secure a supply of parts and repair facilities before deciding on resumption. Nissan made 81,851 cars in January in Japan, where it manufactured 23 per cent of its vehicles.
- Suzuki Motor Corp has halted production at all six of its factories in Japan at least until March 16. Suzuki made 69,170 vehicles in January in Japan, where it produced 30 percent of its cars.
- Toyota Motor Co has halted production at all its 12 factories in Japan at least until March 16. A three-day production halt would reduce output by 40,000 vehicles. Toyota made 234,045 vehicles in January in Japan, where it manufactures 38 per cent of its cars.