Japan-China tensions have been bad for Toyota but good for Ford

Guess that means you don’t want to buy a Toyota.
Guess that means you don’t want to buy a Toyota.
Image: AP Photo/Razvan Valcaneantu
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Toyota retained the top spot in global auto sales for the first quarter this year. A depreciating yen is helping Toyota and other Japanese automakers. But possible headwinds are gathering force as the territorial dispute between Japan and China over islands claimed by both countries stirs again.

Toyota has been on an impressive run since it gained the top spot in global auto sales for the first time in 2008, when it seized the crown from General Motors. It briefly lost the No. 1 ranking in 2011 because of the Japanese tsunami. But it rebounded in 2012 and has retained the lead since.

But Toyota and other Japanese automakers were hurt by the tensions that first flared last year over the disputed island territory. Chinese buyers shunned Japanese vehicles, causing their sales to tank. Toyota sales in China fell by almost 50% last September, when Japan nationalized the islands it calls Senkaku (China dubs them the Diaoyu). Nissan CEO Carlos Ghosn said earlier this year that his company lost about a year’s worth of sales in China.

The controversy had died down in recent months, giving Japanese automakers hope that sales in China may normalize. But the animosity has stirred again after a group of Japanese lawmakers earlier this week visited a war shrine in Tokyo, which is seen as a way of glorifying Japan’s colonial past. Then, yesterday, several Chinese ships and a group of Japanese activists in 10 boats arrived in the area of the islands in a standoff.

The dispute between China and Japan is good news for Japanese car firms’ global competitors. China is a key market for these companies, as more Chinese consumers enter the middle class and can afford to buy a car for the first time. Ford and other automakers are investing in products to tap that market. At the Shanghai auto show this past weekend, Ford unveiled an Escort sedan concept that is pitched as the first car a family in China would buy.

Although Ford had a slower start in China than its competitors like GM, the most populated country in the world is starting to become a huge growth market for Ford. Its China sales were up by 54% in the first quarter compared to the same period a year ago.

Ford today posted a profit that beat analyst expectations. The new Ford Fusion model is boosting sales and helping to round out Ford’s lineup, which depended more on sales of sports utility vehicles and pickup trucks. With car sales still weak in Europe, Ford is looking to North America and China to fuel growth. Toyota’s loss could be Ford’s gain.