They’re little more than some volcanic outcroppings in the midst of the South China Sea, but the dispute over their ownership between China and Japan has led to a collapse in demand for brands like Toyota, Nissan and Honda in the booming Chinese auto market.
The three largest Japanese makers now plan to cut by half their production in China in the wake of recent protests and ongoing calls for Chinese consumers to boycott Japanese products. Meanwhile, Toyota plans to compensate owners whose vehicles were damaged or destroyed during protests over the Diaoyu Islands controversy.
“Our principle is that the customer should not be liable, regardless of whether or not their vehicle already has insurance,” noted an official statement from FAW Toyota, one of the Japanese maker’s Chinese joint ventures. Its other operations will reportedly take similar steps that could include assisting in repair costs or offering subsidies for a replacement vehicle.
Tensions between China and Japan date back generations and reached a new peak when the island nation decided to purchase the disputed islets – known in Japan as the Senkaku Islands – from a private owner. Complicating matters, the move occurred just as China was set to mark the 80th anniversary of the start of Japan’s brutal occupation which preceded World War II.
In a move many believe was condoned, perhaps even encouraged, by the national government, protestors took to the streets across China, in many cases damaging or destroying Japanese stores and vehicles. Though the protests have died down calls for boycotts continue.
Japanese makers were already struggling to catch up to U.S. and European rivals in what is now the world’s largest automotive market but the situation has only gotten worse over the past month. Toyota sales plunged 48.9% last month, plunging to their lowest levels in four years. Honda was off 40.5%.
According to the Nikkei, Japan’s leading business daily, Nissan will eliminate the night shift at its two Chinese plants and operate only during the day. That comes as a significant setback considering the maker had announced significant growth plans during this year’s Beijing Motor Show.
The Nikkei reported that both Toyota and Honda, meanwhile, will halve production by cutting factory hours and slowing line rates. The paper did not say how long such plans are expected to continue.
Smaller Japanese makers including Mazda and Suzuki had curbed production during the worst of the protests but did not confirm whether they also had plans to reduce production in the near future.
As did the cuts in production following Japan’s March 2011 earthquake and tsunami, the Chinese protests have provided some unexpected breathing room for competitors. Despite the recent slowdown in the overall Chinese market, many American, European and Korean brands again saw double-digit growth during September and could continue picking up volume if boycotts take hold against makers like Toyota.
The issue over the islands – which have effectively been controlled by Japan since the 1890s – is far from resolved, though both nations appear to be toning down their rhetoric for now. But with the uninhabited islands said to be situated near potentially rich natural gas reserves – as well as fertile fishing grounds – another flare up could occur at any time.