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Toyota, Honda Gain Ground in China

Chinese car sales regain momentum in February.

by on Mar.11, 2014

Japanese car sales in China plunged -- and a Toyota dealership was even burned -- during protests over a diplomatic dispute.

After an unexpected slowdown, sales of new vehicles in China appear to be regaining momentum, growing by 18% in February, the China Association of Automobile Manufacturers (CAAM) reports, as the Chinese market shrugged off concerns about an overheated market and the overall pace of the country’s economic expansion.

The upturn was particularly good for Japanese makers like Toyota and Honda which are finally recovering from the effects of a diplomatic dispute between China and Japan spurred by the debate over ownership of a chain of uninhabited islands.

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Both Toyota and Honda reported strong sales during February, as did General Motors and Ford Motor Co., which had record sales in what has become the world’s largest market for new vehicles. Volkswagen AG, which topped the Chinese market last year, hasn’t reported detailed sales figures yet but CAAM pegged total sales of new vehicles across China at 1.6 million units.

Total sales in China this year could approach could approach 20 million this year and analysts said it appears the market is more robust than anticipated as demand for new vehicles continues to grow in large inland cities away from coastal area where traffic and pollution has reached epic proportions.

For the first two months of 2014, deliveries in China climbed 11%, to 3.75 million units, according to the CAAM.

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Meanwhile, sales by the big three Japanese automakers, Toyota, Honda and Nissan, have continued to recover even though the bitter diplomatic dispute between China and Japan remains unresolved.  Following Japan’s purchase of those islands in late 2012 riots flared across China, with numerous Japanese vehicles damages and a Toyota dealership burned by protestors.

The standoff has continued unabated with China announcing a substantial increase in its defense budget while the Japanese government has proposed revisions to the Japan’s post-World War II constitution that would neutralize the document’s pacifist provisions.

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On the positive side, the Chinese government has cracked down on demonstrations against Japan’s automakers, which have invested billions of dollars and support thousands of jobs in China.

The year-long slump in the sales of Japanese brands left Toyota, Honda and Nissan trailing far behind their American and European rivals. But foreign brands now dominate sales in China.  The market share of local Chinese brands has slipped by 4.6 points so far this year to less than 39% of the market, according to the CAAM.

“China’s homegrown auto industry is currently facing huge challenges despite being in the early stage of development,” Dong Yang, secretary general of CAAM, said at a Tuesday briefing in Beijing. “Internally, there are also issues such as weak innovation and competitiveness.”

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Toyota’s sales increased by 43% last month, even though Ford surpassed it to become China’s fifth-largest carmaker. Honda sales jumped by 28%. Nissan Motor Co. reports a nearly 56% increase for the month.

“Japanese brands have continued to show growth,” Yankun Hou and Ming Xu, analysts at UBS AG, said in a report released last week. “We believe the market is too negative over auto demand,” which will be “supported by resilient inland demand,” they wrote.

GM, which lost its title as China’s largest foreign automaker to Volkswagen AG in 2013, said deliveries rose 20% last month.

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