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A sign is seen outside a Tianjin Faw Toyota Motor Co. showroom, a joint venture between China's Tianjin FAW Xiali Automobile Co Ltd and Japan's auto maker Toyota Motor Corp, in central Beijing October 9, 2012. A Toyota Motor spokesman said on Tuesday that sales in China fell 48.9 per cent in September from a year earlier, while Honda Motor Co reported its sales in China fell 40.5 per cent.DAVID GRAY/Reuters

Japanese car makers reported tumbling sales in China for September – with Toyota's almost halving – confirming the impact of a territorial row between the two countries and raising concerns about their future in the world's biggest auto market.

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

Toyota Motor Corp. said on Tuesday that sales in China fell 48.9 per cent in September from a year earlier, while Honda Motor Co. reported a 40.5-per-cent slide in its sales there.

Nissan Motor Co's China auto sales, including imports, fell 35.3 per cent in September from a year earlier, according to its China venture partner Dongfeng Motor Group Co. Suzuki Motor Corp. said shipments to dealerships in China fell 42.5 per cent last month from a year earlier.

"Inventories are growing, factories are operating less, and retail is not going well at all," said Koji Endo, a senior analyst at Advanced Research Japan.

"It'll be the German and South Korean makers that will take over share from the Japanese brands when Japanese cars sell less. I don't see a single factor that is positive (for the Japanese brands)."

While the street protests have eased, China has sent its patrol ships into what Japan considers its territorial waters near the islands in recent weeks, prompting Tokyo to lodge protests against Beijing.

Analysts say that sales for Japanese car makers, which together had just over a fifth of the Chinese auto market before the protests, could continue to weaken as long as the diplomatic tension remains.

"We had cut our 2012 sales forecast of Japanese cars by 100,000, but it seems to be way too conservative now," said John Zeng, Asia Pacific director for industry consultancy LMC Automotive. "We had previously expected them to sell 3.04 million, but it will be great if they could move 3 million."

Toyota and its two local Chinese partners sold a total of about 44,100 vehicles in September, the company's Beijing-based spokesman Takanori Yokoi said.

For the first nine months of this year, sales by Toyota and its partners totalled about 640,200 vehicles, up 4.6 per cent from the year-ago period, Mr. Yokoi said.

Smaller rival Mazda Motor Corp. said last week that its China sales tumbled 35 per cent in September from a year earlier.

According to Toyota sales executives in Beijing and dealers selling Toyota and Lexus cars, sales began bouncing back towards the end of the month, giving hope for an early comeback.

"The biggest question now is how permanent the damage Toyota and other Japanese brands sustained is," a key Toyota and Lexus dealer operator said. "It's too early to say one way or the other, but we are a bit concerned."

A Japan-based Toyota executive has told Reuters that Toyota's production cutbacks in China were likely to extend through November, which points to the company's pessimism over prospects for an early recovery.

At least two Beijing-based Toyota executives have told Reuters that the Japanese auto maker and its Chinese partners were unlikely to be able to deliver their goal of selling 1 million cars in China this year. They sold less than 900,000 cars in 2011.

Among the Japanese car makers, Nissan is the most exposed to the Chinese market, followed by Honda and Mazda.

In 2011, Nissan sold 883,000 vehicles in the world's biggest car market, which accounted for about 27 per cent of the vehicles the firm sold globally. For Honda, that ratio was about 20 per cent, while for Mazda, it was around 18 per cent.

For Toyota, Japan's biggest auto maker, China accounted for about 12 per cent of the vehicles it sold globally in 2011.

Market share of Japanese brands stood at 21.2 per cent at the end of August, down from 21.6 per cent in 2011, according to official data. German brands advanced to 23.3 per cent from 21.3 per cent, while market share of Korean brands rose to 9.3 per cent from 9 per cent during the period.

The dramatic fall-off in demand for Japanese vehicles has been an unexpected boon for other foreign brands. In September, BMW's China sales surged 55 per cent, Audi by 20 per cent and Hyundai Motor by 15 per cent.

The anonymous Toyota-Lexus dealer operator's read from visiting his Toyota and Japanese-brand car outlets, mostly in southern China, is that 10 per cent of his customers have now no intention to buy Toyota cars and cancelled their orders, while 20 per cent are sticking to them. "The rest – about 70 per cent – are on the fence."

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