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Japan auto makers' China slump accelerates on islands row

A man walks by Honda vehicles displayed in front of Honda Motor Co. headquarters in Tokyo Monday, Oct. 29, 2012.

Koji Sasahara/AP

Honda Motor Co. Ltd's China car sales plunged 54 per cent in October from a year earlier, with the pace of decline accelerating from the previous month as Japanese auto makers suffer the backlash from a territorial dispute between Beijing and Tokyo.

Smaller rival Nissan Motor Co. Ltd. also reported a steepening slump in its China sales.

The hit taken by Japanese firms in the world's biggest auto market has been a boon for some Asian and European rivals, with Hyundai reporting it sold more cars in China in October than Honda and Toyota Motor Corp. could muster between them.

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Honda, which earlier this week cut its full-year earnings forecast by a fifth, has warned it could be February before business returns to normal in its second-largest market, where consumers are turning to German, Korean and U.S. cars instead.

But such a forecast may be too optimistic.

"I think that's Honda's wishful thinking given the current circumstances," said John Zeng, Asia Pacific director of industry consultancy LMC Automotive. "A diplomatic row is not something within its control. As long as the stand-off continues, I don't think we will see any substantial recovery."

Violent protests and calls for boycotts of Japanese products broke out across China in mid-September after Japan nationalized two disputed islands in the East China Sea, known as the Diaoyu in Chinese and the Senkaku in Japanese, by purchasing them from their private owners.

The street protests have since eased but diplomatic tensions continue to fester, with both Japan and China sending patrol ships to waters near the uninhabited islands in recent weeks.

The Chinese government has condemned violence against Japanese nationals and their property, but anti-Japanese coverage of the diplomatic row carried daily by state media is hurting the image of Japanese companies, industry observers say.

Indeed, Honda's sales decline in October accelerated from September when they fell 41 per cent from the year-ago level.

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Honda, which builds cars in partnership with Dongfeng Motor Group Co. and Guangzhou Automobile Group Co., sold 24,115 cars in China in October, down from 51,826 a year earlier.

Sales in the first 10 months climbed 2.7 per cent to 494,108, the company said in a brief statement.

Nissan, which makes vehicles in China in partnership with Dongfeng Automobile Group Co., sold 64,300 vehicles in China in October, down 41 per cent from a year earlier. That was worse than a 35 per cent year-on-year fall the previous month.

In further evidence that South Korean and some European car makers were benefiting at the cost of their Japanese rivals, Hyundai Motor said its China sales climbed 37 per cent in October from a year earlier, up from a 15-per-cent rise in the previous month.

Hyundai's October China tally of 80,598 is more than the 69,715 combined sales of Honda and Toyota for the month, when Toyota's China sales fell 44 per cent.

Honda said on Monday that its two biggest China plants would continue to run on one shift, rather than two, until at least the middle of next month, with output then gradually picking up ahead of Lunar New Year in February – a traditional buying season.

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It has cut its full-year China sales forecast by 17 per cent to 620,000 vehicles, but said it would stick to the plan to invest $880-million to expand capacity at its factories in Guangzhou and Wuhan over the next few years.

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