July 25, 2012 / 9:40 AM / 5 years ago

China slowdown to weigh on results, outlook of Nissan, rivals

TOKYO/SEOUL (Reuters) - Sputtering growth in China, the world’s largest auto market, is clouding the outlook for Asian car brands and will weigh on results due for release in coming weeks.

A Nissan logo is seen on the car maker's booth during the first media day of the Geneva Auto Show at the Palexpo in Geneva, March 6, 2012. REUTERS/Valentin Flauraud

Auto sales in China grew just 2.9 percent in the first half of 2012 after posting anemic growth of 2.5 percent in 2011, setting the country up for its slowest back-to-back years of growth since the market took off in the late 1990s.

In 2010, growth had been a blistering 32 percent.

Nissan, which has a relatively high exposure to the China market compared to its Asian peers, is expected to report a fall in profit for the April to June quarter.

Domestic rivals, including Toyota and Hyundai are expected to report rises in profits despite the sharp slowdown in growth in the Chinese auto market.

Nissan (7201.T) relies on China for 30 percent of its global sales - a relatively high share on a par with Volkswagen (VOWG_p.DE) and General Motors (GM.N).

According to six analysts surveyed by Thomson Reuters I/B/E/S, Japan’s No. 2 automaker will post a 4-percent drop in quarterly net profit when it reports its figures on Thursday.

A major factor in the decline is a stronger year-earlier performance. Nissan bounced back more quickly than its domestic rivals from the supply disruptions that followed the Japan’s earthquake and tsunami in March 2011.

But China will be a key factor in the company’s sales performance in the rest of the year given its heavier reliance on demand in the top market.

“Nissan’s exposure to China is high, and with changes underway in growth rates and the competitive environment there, Nissan faces greater downside risk for earnings,” J.P. Morgan analyst Kohei Takahashi said in a report.

Many analysts expect the Chinese auto market to pick up in the latter half of this year, but much will depend on the impact of the euro area debt crisis on the global economy.

“It’s not easy for any car maker,” said Koichi Sugimoto, a senior analyst at BNP Paribas in Tokyo. “There is no effective remedy for this kind of macroeconomic woe.”

Nissan Chief Executive Carlos Ghosn has set an ambitious target of nearly doubling annual sales to 2.3 million vehicles by 2015. In April, Ghosn predicted the China auto market would grow by up to 6 percent in 2012 and said its long-term growth prospects remained strong.

“The rhythm of between 5 percent to 10 percent growth in sales will continue for the foreseeable future, so China should continue to do well,” he said at the Beijing auto show in April.

Hyundai Motor (005380.KS) is expected to post on Thursday a net profit of 2.52 trillion Korean won ($2.21 billion) for the second quarter, up 9 percent from a year earlier, a Reuters poll of 14 auto analysts shows.

Despite the strong global performance, Hyundai has lost ground in China, its top market and 20 percent of its global sales. In addition to the slowdown, Hyundai is hitting the limits of its capacity in China at its two existing assembly plants, analysts say.

Hyundai’s first-half market share slipped to 5.65 percent from 5.89 percent even as rivals like VW, GM, Toyota and Nissan gained ground, data from forecaster LMC Automotive shows.

“Hyundai will sell more cars in China in the second half as its new, third China plant has just started production,” said Cho Soo-hong, an auto analyst at Woori Investment & Securities in Seoul.

For Toyota Motor Corp (7203.T) and Honda Motor Corp (7267.T), much of an expected bounce back in the past quarter reflects the comparison with dismal year-earlier results because of the earthquake, analysts say.

Toyota, due to report on August 3, is expected to swing to a net profit of 243 billion yen from an 80-billion-yen loss a year earlier.

Honda, Japan’s No.3 automaker, is likely to post a net profit of 144.8 billion yen, nearly five times its year-earlier result. It reports on July 31.

In India, Tata Motors’ (TAMO.NS) Jaguar Land Rover unit, a newcomer to China, continued to see sales grow. Tata, which saw China sales of the British luxury brands rise 76 percent in the year to March, is expected to report On August 3 a 44 percent rise in quarterly profit.

Reporting by Yoko Kubota, Norihiko Shirouzu in Beijing, Henry Foy in Mumbai; Editing by Neil Fullick

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