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Japan auto giants warn on China dispute, strong yen
by Staff Writers
Tokyo (AFP) Nov 7, 2012


Bridgestone reports soaring profit
Tokyo (AFP) Nov 7, 2012 - Japanese tyremaker Bridgestone said Wednesday that its nine-month profit soared 41 percent, recovering after last year's quake-tsunami disaster.

The company said net profit rose to 115.8 billion yen ($1.45 billion) despite slightly lower sales of 2.22 trillion yen in the first nine months of the year.

Bridgestone left unchanged its calendar-year forecast for a net profit of 172 billion yen on sales of 3.13 trillion yen.

Bridgestone credited new products including higher-end offerings and rebounding auto production in disaster-struck Japan while strong sales in other parts of Asia helped offset declines in Europe.

"Due to recovery in vehicle production volume, unit sales of tyres for new vehicles steadily increased," it said in a statement.

However, the company warned that the first nine months of the year was "plagued" by high raw material prices and the strength of the yen, which makes Japanese firms' products less competitive overseas.

"The United States was still on the seesaw of recovery and recession, and the financial crisis had a negative impact on the European economy," it said, adding that China and India also showed "signs of a slowdown".

A Chinese boycott of Japanese goods sparked by a territorial dispute threatens to undermine the healthy recovery the nation's top automakers made after last year's quake-tsunami disaster, analysts say.

Despite posting profits in the first half of the year that left their stumbling electronics counterparts in the dust, the auto sector warned that the slump in China sales and a strong yen were putting the brakes on growth.

The bitter row has seen demand for Japan-brand products plunge in China, the world's biggest vehicle market, while the persistently high yen makes manufacturers' products less competitive overseas.

"The China factor is still unpredictable as this is politics, not business," said Shigeru Matsumura, auto analyst at SMBC Friend Securities in Tokyo.

The concerns were highlighted again Tuesday when Nissan warned that its profit in the fiscal year to March would be 20 percent lower than earlier forecast, as the unofficial boycott among Chinese consumers hit business.

Honda said its earnings would also shrink by one-fifth in the current fiscal year owing to the diplomatic and currency challenges.

Toyota, less dependent on China than its rivals, raised its annual earnings forecast to $9.7 billion, saying cost-cutting and strong sales outside China and debt-hit Europe helped its performance.

But Japan's biggest automaker still warned that full-year sales would be negatively impacted by the diplomatic row.

The long-standing dispute flared again in mid-September after Tokyo nationalised an East China Sea island chain also claimed by Beijing, setting off huge demonstrations across China and the wide-ranging boycott.

Japanese factories and businesses across the country temporarily closed or scaled back operations for fear of being targeted by angry mobs.

Nissan's chief operating officer said this week that visitor numbers to car dealerships in China have been "recovering gradually" and there was no plan to change its growth strategy in the country.

But chief executive Carlos Ghosn earlier warned that Nissan would think twice about making new investments in China amid the row. It has several production plants in the country, with a new factory in the northeastern city of Dalian planned for 2014.

Still, the yen -- which hit record highs around 75 against the dollar late last year and remains strong -- may be the bigger threat to Japan's automakers, said Eiji Hakomori, auto analyst at Daiwa Securities in Tokyo.

"China is only part of the global market," he said.

"Japanese automakers are doing well in terms of vehicle sales -- revenue in emerging markets is brisk -- but if the current forex rate continues, automakers will eventually lose their competitiveness."

The yen has been cited as a major problem for Japan Inc. with top electronics producers Panasonic and Sharp saying they expect eye-watering annual losses totaling more than $15 billion combined.

Once-iconic Sony offered a glimmer of hope, saying it was still on track to make a small profit this year -- after four years in the red.

Faced with mounting losses, especially in the television business, Japan's major electronics producers have been undergoing dramatic corporate overhauls including tens of thousands of job cuts.

By contrast, the nation's top three automakers -- Toyota, Nissan and Honda -- booked healthy half-year profits, after being pounded by last year's natural disasters as demand at home skidded and production temporarily stalled.

Despite the challenges, including the expiry of government auto subsidies at home, the trio still expect to post combined earnings of more than $18 billion in the year to March.

Tailoring products to local markets is one of the reasons that Japanese automakers are powering ahead, analysts say.

Also, the nation's high labour costs have seen automakers cut production costs and aggressively eye overseas factories. Nissan said last week it plans to open a second plant in Thailand in 2014.

The cross-ocean moves have sparked hand-wringing over Japan's shrinking manufacturing sector, but analysts said the high yen makes a strong case for them.

"Japanese carmakers had a global vision and concentrated on producing, developing and selling cars to local markets despite risking a so-called hollowing-out effect at home," said Matsumura at SMBC Friend Securities.

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