Toyota Is Still Struggling in China

Toyota is pinning its China hopes on several new models, including the all-new Yaris unveiled in Shanghai last weekend. Photo credit: Toyota

Last fall, a dispute between the governments of China and Japan over ownership of some islands touched off a wave of anti-Japanese feelings in China. Many Japanese brands that had seen huge growth in sales in recent years suddenly saw their sales numbers fall off a cliff.

The Japanese automakers weren't spared. Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , and Nissan (NASDAQOTH: NSANY  ) all saw sales numbers fall sharply in September 2012 – and they've stayed down since.

For Toyota in particular, this has been a challenge. The company had been striving to catch up to the China market leaders, General Motors (NYSE: GM  ) and Volkswagen (NASDAQOTH: VLKAY  ) , but now finds itself well behind – in fact, it was just passed by up-and-coming Ford (NYSE: F  ) .

So is a recovery likely? Not anytime soon, Toyota's China chief said on Sunday.

Toyota has fallen behind while Ford has gained
Speaking to reporters at the Shanghai Auto Show on Sunday, Toyota China chief Hiroji Onishi said that the company had originally expected sales to recover after six months – but that didn't happen.

Now, Toyota is pinning its hopes for a China recovery on this fall's new-car season. It is showing a whopping 52 models at the Shanghai show, and has several key new-model launches set for later this year.

But will it be enough? It's tough to say.

On the one hand, the past few years have shown that underestimating Toyota's ability to rebound from a crisis would be a mistake. The company was hit hard by a huge recall scandal in 2010 and a tsunami that crippled key suppliers in 2011 – yet it rebounded to lead the world in sales in 2012.

On the other hand, China has proven to be a tough challenge for Toyota. While the company's global reputation for quality and value carries weight with Chinese car-buyers, other automakers have proven to be more willing (or more able) to develop cars that cater to Chinese consumers' needs and tastes.

VW has been particularly good at this, capturing 19.5% of the retail new-car market in 2012, according to a recent analyst report. Ford has also made tremendous gains: The Blue Oval's sales are up 54% so far this year, and the company is investing heavily for bigger gains in years to come. Already, Ford is suggesting that it will launch more China-specific models to capture additional sales.

Is Toyota learning from its mistakes?
Toyota isn't standing still, though. It is restyling some entry-level models (like the Yaris, shown above) to make them more appealing in China, and making other moves that suggest that it is learning from its mistakes.

But will the Chinese public respond? It's possible that even now, Toyota is being overly optimistic. A decade ago, the company said it would be selling 1 million cars a year in China by 2010 and 1.8 million by 2015. But it has yet to sell a million, and sales were actually down almost 5% in 2012.

Now, analysts are saying that the company might not hit the 1 million mark until 2015, according to Bloomberg.

That suggests that Toyota still has a long battle ahead of it in China.

Is Toyota's stock a buy right now?
Toyota has rebounded nicely from the troubles of recent years, and the stock has risen sharply in 2013. But is the stock still a buy at current prices? The Motley Fool's contributing automotive expert John Rosevear and industrials analyst Isaac Pino have collaborated to create some of the most in-depth Toyota research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.


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