Toyota Dealers In China Face Tightening Of Market

 

Toyota dealer in Beijing

China has set six straight annual records for the most new vehicles bought by any country in the 150-year history of the automobile. And yet, a troubling trend has emerged among the dealers moving all that metal — most are just spinning their wheels.

This should cause Toyota Motors here in Nagoya to take pause and consider its marketing and dealer contracting in China.  Right now the Toyota dealers are barely profitable.  This year looks bleak for dealers excluding Chinese manufacturing dealers as China sets greater regulations and higher taxes for non-Chinese auto dealers.

 

Three in four dealers were either unprofitable last year or just breaking even, according to the China Automobile Dealers Association. With little sign of improvement in the economy and carmakers pushing too much inventory onto their ever-growing networks of retailers, the situation may worsen this year, said Zhu Kongyuan, secretary general of the China Auto Dealers Chamber of Commerce.

“It’s getting more and more difficult for dealers to stay in business, as new car sales are not making much profit anymore with all the competition on price,” said Zhou Jincheng, an analyst at researcher Fourin Inc. in Nagoya, Japan. “Under this situation, dealerships won’t stay as they are. They’ll be reorganized, and some may be integrated.”

China’s auto industry operates in a Gold Rush-like atmosphere. Manufacturers have raced to fill their lineups and expand dealer networks to stake their claim of a market that’s grown six-fold in the last decade.

This week, General Motors Co., Volkswagen AG and Nissan Motor Co. are among the exhibitors parking 1,179 vehicles on 30 soccer-fields-worth of floor space in Beijing for the city’s biennial motor show. Those three carmakers have nearly as many dealers as there are McDonald’s, KFC and Starbucks stores in China, according to analysts at Sanford C. Bernstein & Co.

With more than 1,600 exhibitors at the auto show and dealers struggling, China may seem ripe for consolidation both at the dealer and manufacturer level. Manufacturers have done only 10 acquisitions valued at more than $1 billion in the last decade, according to data compiled by Bloomberg. The first such deal among retailers was China Grand Automotive Service Co.’s $1.1 billion purchase of a stake in BMW AG retailer Baoxin Auto Group Ltd., announced in December.

Conditions are in place for similar deals, including for U.S. auto dealer groups like AutoNation Inc. and Penske Automotive Group Inc. to enter China, said Michael Dunne, a Hong Kong-based strategy and investment adviser at Dunne Automotive Ltd.

While China’s been setting annual sales records, deliveries have come up short of the state-backed China Association of Automobile Manufacturers’ initial growth forecasts in four of the last five years. Last year’s 4.7 percent expansion was the smallest since 2012.

“The slowing market means that several dealers are genuinely interested in exiting the business for the first time,” said Dunne, who started visiting Chinese dealerships in the 1980s.

“They’ve got to shift in a hurry to areas that they’re not familiar with,” including used-car sales, parts and service repairs and financing. “These are areas where big, American dealership groups really excel.”

New entrants would be able to count on Beijing providing a boost if car sales wane, with the government keen to transition the economy toward greater reliance on the consumer than on investment. After deliveries fell in five consecutive months last year, the central government stepped in with a tax cut on purchases of vehicles with smaller engines that took effect Oct. 1.

While the tax cut has succeeded in buoying sales, it’s fallen short of helping dealers clear their crowded lots. For the last seven months, the China dealers association’s Vehicle Inventory Alert Index has registered above the 50 percent level that indicates low market demand and high inventories.

Nagoya Business Weekly

Translated from Japanese by Dallas Brincrest and Charles Gannon

Nagoya Court To Hear KEPCO's Takahama Case

Takahama Nuclear Plant Operated By KEPCO

The Nagoya District Court has agreed to hear its first case against restart of the Takahama Nuclear Power Plant operated by Kansai Electric Power Company (KEPCO). 

Plaintiffs seeking to halt the restart of two KEPCO reactors now more than 40 years old filed a lawsuit in the Nagoya District Court on Saturday to challenge the government-appointed Nuclear Regulation Authority’s restart review process, warning that running the units for another two decades would be dangerous. 

Kepco’s Takahama No. 1 and 2 reactors in Fukui Prefecture began operation in 1974 and 1975, respectively, and the original plan was to decommission them after 40 years.

However, the government has authorized a one-time, maximum two-decade extension if the old reactors pass new safety tests.

The NRA essentially cleared the two Takahama reactors in February, but will conduct other specialized checks to determine their condition before deciding whether or not to officially grant approval for an extension.

“In a serious accident at the Takahama reactors, there is a danger of radiation damage from the effects of a westerly wind,” said lawyer Sakae Kitamura, who is representing the plaintiffs, at Saturday’s news conference in Nagoya.

Kepco is racing against time to finish the safety review and secure approval before the July 7 regulatory deadline. If Kepco misses the deadline, the utility will be forced to permanently shut both reactors.

The major issues the plaintiffs are contesting include concerns about the condition of the reactors’ pressure vessels, and questions about whether the seismic risks for the old reactors have been fully considered.

Jiji Press