When I first heard rumblings that Japanese automakers were likely to see a substantial decline in September sales in China, my first reaction was skepticism. Yes, I knew Asia’s two powerhouses were engaged in a dustup over a territorial dispute in the East China Sea. Midway through the month, Japan nationalized two islands (known as the Diaoyu in Chinese and the Senkaku in Japanese), a move that led to violent protests and calls for boycotts of Japanese products throughout China.
Naturally, the biggest victim of those boycotts was carmakers, and that’s resulted in a sales plunge that, frankly, I didn’t anticipate.
All the Japanese automakers suffered the wrath of the Chinese boycott, including Toyota (NYSE:TM), Honda (NYSE:HMC) and Nissan (PINK:NSANY), Mitsubishi and Mazda. During September, Toyota’s China sales tumbled an incredible 48.9% year-over-year, while Honda was just slightly better with a sales plunge of 40.5%. Nissan’s China sales sank 35.3% in September vs. the prior year. Even smaller Japanese manufacturers got hammered, with Mitsubishi suffering a 63% dive in September China sales, and Mazda slowing 36%.
The boycott will likely be a temporary phenomenon, but just how temporary is unclear. Both Toyota and Nissan halted production in their China facilities amid the exploding political tensions, and even when they come back, production is likely to be curtailed due to dampened demand from anti-Japan consumers.
According to a report in The Globe and Mail, at least two Toyota executives told the news agency Reuters that the boycotts and plant closures would make the company unlikely to achieve its goal of selling 1 million cars in China this year. Considering that China accounts for about 12% of Toyota’s overall sales, the problem will undoubtedly have a deleterious affect on the company’s bottom line.
Nissan has even bigger exposure: In 2011, about 27% of its vehicles were sold in China. Honda sold about 20% of its vehicles in China in 2011.
So, the logical question here is who is set to benefit most from the Japan/China territorial conflict?
One likely candidate is General Motors (NYSE:GM), which sees China as a huge growth market. Unfortunately for GM, its September numbers weren’t extremely encouraging. The company’s China sales did rise in the month, but at a snail’s pace of just 1.7%.
Perhaps the real winners among automakers are the German and South Korean brands. For example, BMW saw its September China sales spike 55% year-over-year. One of the most popular brands among China’s luxury consumer is Volkswagen’s (PINK:VLKAY) Audi. In September, Audi’s China sales surged some 20%. Mercedes also had gains, with sales in the country jumping 10% in the month. Even South Korean auto maker Hyundai chalked up a nice boost, with gains of 15%.
The bottom line here for investors who want to play auto stocks is that due to the political conflict over these islands, we’re likely to see lower profits from Japanese automakers. However, picking up the slack are German and South Korean manufacturers, rather than U.S. auto giants like GM or Ford (NYSE:F). Therefore, this situation is more of a “stay away” from the sector than a “buy the winners” scenario.
At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.