Where the rubber meets the road

Japanese carmakers promised special Chinese designs and green technology in addition to the usual flashy fanfare at this year's Shanghai Auto Show, trying to woo back sales that tumbled during a territorial dispute over islands in the East China Sea late last year.

China is the world's biggest vehicle market, and crucial to the growth plans of international carmakers. Japanese manufacturers such as Toyota lost market share to US, South Korean and German rivals as their sales plummeted and now, even as tensions between Japan and China ease, they continue to languish.

The dispute over control of the Japanese-administered islands, known as Diaoyu in China and Senkaku in Japan, set off riots in China and prompted a boycott of Japanese cars. Sales of cars from Japanese manufacturers plunged at one point to half of what they had been the previous year.

The latest figures show sales of Japanese brands are still declining as other carmakers make inroads into a market that analysts predict will have annual sales of 32 million vehicles by 2020 - equivalent to the United States and Europe combined.

Japanese car sales on the mainland fell 17.8 per cent in March as overall sales surged 13.3 per cent, according to Alec Gutierrez, a senior analyst at vehicle valuation firm Kelley Blue Book.

"Until the territorial dispute is resolved, it appears as though Japanese automakers will continue to face challenges in the still-growing Chinese market," he said.

Honda Motor president Takanobu Ito said the carmaker had experienced anti-Japanese sentiment in the US during the late 1980s, but that Honda had earned its place there by bringing Americans on board as developers and assembly line workers.

"It's not that all Chinese people dislike our cars," he told reporters at the show. "There is no mistake that we want to contribute to Chinese society. We just have to keep at it."

The show, held in a sprawling exhibition centre, opened to the public on Sunday and runs until April 29.

Nissan Motor, whose March sales were down nearly 17 per cent from last year, has been wooing buyers back with a warranty on cars that get damaged by rioters.

It fixed or replaced dozens of cars that were damaged in riots last year at no charge. Since then, it has not had to exercise the warranty.

Nissan, which also makes Infiniti luxury cars, says it is serious about building its presence in China, and has invested in developing its Venucia lineup of cars, aimed at the tastes and budgets of cost-conscious buyers. It also stressed Chinese participation in development of the brand, a priority for Beijing, which wants its own carmakers to grow into global names.

While some manufacturers have slapped together brands customised for China, Nissan said it had taken great care in its approach and is touting Venucia as the most successful of a series of models introduced by carmakers to target the economy market.

Nissan design chief and senior vice-president Shiro Nakamura said the firm's China sales should be growing, not just returning to the previous year's levels. He stressed that Nissan cannot afford to lose in China.

In contrast to developed countries, China's potential remains vast even if sales growth has slowed from 2009, when it reached a heady 45 per cent. For every 1,000 people, car ownership is at 800 people in the US and 600 in Europe and Japan, but a mere 50 in China.

Big business is expected in the mainland's second- and third-tier cities, where people are just starting to think about owning cars as incomes rise.

Winning in the Chinese market is also likely to depend on other factors, such as the strength of dealerships, the appeal of model lineups and the management of recalls, analysts say.

The Japanese must overcome their current sales difficulties and also deal with tough competition from European and US rivals.

Germany's Volkswagen, the biggest-selling marque on the mainland, is investing €9.8 billion (HK$98.3 billion) in its China business until 2015, mostly for fuel-efficient vehicles.

But Namrita Chow, a senior analyst at IHS Automotive in Shanghai, said Ford Motor and South Korea's Hyundai Motor had been best able to take advantage of Japanese carmakers' sales struggle and increased their market share in China.