Protests and Boycotts Cause Toyota's (TM) China Sales to Plunge 40%

Shares of Toyota (TM: Charts, News) slid at the end of last week, after the company reported a 40% slide in sales in China due to protests and boycotts due to the Japanese government's purchase of a group of disputed islands in the East China Sea.

The islands are jointly claimed by China, Taiwan and Japan, and are respectively referred to as the Diaoyu, Tiaoyutai and Senkaku Islands by the disputing parties. The uninhabited islands are currently used for fishing routes, but the ocean floor is believed to contain rich natural gas reserves. Daily Chart
This perceived encroachment by the Japanese government has triggered a violent wave of anti-Japanese sentiment across mainland China, resulting in the boycott of all Japanese-made products, including automobiles and home electronics. As a result, Toyota's foreign rivals experienced surges in sales volume as Chinese consumers rejected Japanese cars altogether. Hyundai, based in South Korea, notably posted a 15% increase in Chinese sales in September, selling 84,188 vehicles. BMW posted a 55% surge, Daimler's Mercedes-Benz rose by 10% while Volkswagen's Audi brand posted 20% growth. The ongoing protests have been occurring across China since mid-September, and have caused Toyota's showroom traffic and sales to plummet. A Toyota outlet in Qingdao was set ablaze, while Japanese vehicles were vandalized and destroyed, despite belonging to Chinese nationals. In several of these incidents, Chinese drivers and passengers were dragged out of their vehicles and violently assaulted. These widely publicized events have caused everyday citizens, who are not necessary anti-Japanese, to stay away from Japanese vehicles. As a result, Toyota only sold approximately 50,000 vehicles in China in September, down from 86,000 a year earlier. This was also a monthly decrease from the 75,000 vehicles sold in August. China, the world's largest auto market, is considered a key target segment for all global automakers. Both Toyota and Nissan have been struggling to recover since the tsunami in March 2011 suspended manufacturing operations, and subsequent floods in Thailand in December 2011 wiped out multiple manufacturing facilities. The disastrous year for Japanese automakers helped boost General Motors (GM: Charts, News) to the top automaker spot for most of 2011. Analysts believe that Toyota will soon reduce its full year sales forecast. At the beginning of the year, Toyota had anticipated selling over a million vehicles in China - a goal that one Toyota executive now calls "almost impossible" due to the wave of anti-Japanese sentiment in China. Of the three major Japanese automakers - Toyota, Nissan and Honda (HMC: Charts, News) - Nissan's exposure to China is the heaviest, at 27% of total global sales. On a brighter note, Toyota has recovered well in the United States, where the automaker has been catching up to Ford (F: Charts, News), the second largest domestic automaker. In September, Ford sold a mere 3,066 more vehicles than Toyota in the United States. Analysts project Ford to maintain this slim lead over Toyota for the rest of the year, finishing the year at 2.2 million vehicles to Toyota's 2.05 million. industry analyst Jesse Toprak noted, "I think Ford will still have an advantage, but it's going to be a very close race. We can't write off Toyota." For the year, Ford has sold 113,644 more vehicles than Toyota. Both automakers lag behind General Motors, which has already sold 1.97 million vehicles in the first nine months of the year. Shares of Toyota trade at 9.6 times forward earnings, with a 5-year PEG ratio of 0.25, meaning that the stock is fundamentally undervalued. Meanwhile, General Motors trades at 6.4 times forward earnings with a 5-year PEG ratio of 0.69. Toyota stock pays a quarterly dividend of 76 cents per share - a 1.63% yield at current prices. Other News About TM GM Recalls 40K Cars for Fuel Leak Another mass recall at GM. (TM) Toyota is catching up in the United States. Other Stocks in the News Forget Zynga, Facebook Has Bigger Issues: Najarian Is Facebook about to plunge? Analysts Slash Targets AfterZynga Warns of Loss Zynga investors abandon ship as the stock plummets. Copyright 2012 by, Inc. 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Published on Oct 9, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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