Beijing (China Daily/ANN) - The dispute between China and Japan over the Diaoyu Islands (known in Japan as Senkaku Islands) this month is just the latest blow to Japanese carmakers.
As the pearl of the Japanese economy, the automobile industry will undoubtedly be the first to feel the impact.
As anti-Japan demonstrations spread, its automobiles became a target. In some cities Japanese dealerships were attacked and the normal operation of Japanese auto companies has been disturbed.
Many customers are choosing other brands due to fear of their cars being attacked, with many who pre-ordered cancelling or postponing their purchase.
Japanese cars had already registered a 2 per cent decline in China sales in August, allowing German carmakers to surpass them in market share for the first time.
The chief operating officer of Nissan Motor, Toshiyuki Shiga, said the poor sales performance in August was due to difficulty in implementing advertising activities, with most of its outdoor advertising cancelled.
Before the end of August, Toyota cancelled all advertising in China. Other outdoor activities were cancelled at the beginning of September, surely resulting in worsening sales performance in the days to come.
Ozaki Qing, vice-president of Mazda, said "the negative factors in the first half of 2012 were the exchange rate and the Chinese market".
But can Japanese brands withstand a failure in the world's biggest auto market? The answer is a definite "no", as we can see from financial statements.
In 2008, Toyota suffered a loss of US$4.4 billion, but its two joint ventures in China - FAW Toyota and GAC Toyota - made profit of about $1 billion during the year.
According to financial statements from Toyota, the carmaker had a 2010 profit of 209.5 billion yen (about $2.25 billion), with the Chinese market contributing $800 million to the figure. If the 30,000 imported Lexuses are added, its sales in China totalled at least $1 billion.
Last year Toyota had a net profit of about $3.5 billion, with FAW Toyota alone contributing $2.3 billion.
The situation for Honda is similar. Its 2009 global net profit was $3.18 billion, with $2.86 billion of it generated in China.
It is estimated that Honda made a profit of about $884 million in China last year, about a third of its $2.6 billion globally.
On last Saturday, the Japan-China Economy Association sent a delegation headed by Toyota Chairman Fujio Cho to visit cities including Beijing.
Delegates are scheduled to meet with Chinese government officials in a bid to ease tensions and reinforce the importance of economic ties between the two countries.
Yet even before the latest Diaoyu Islands dispute, the market share of Japanese cars was in decline.
Japanese brand car sales have been damaged by a large-scale recall from Toyota and supply shortages due to the earthquake and tsunami in Japan.
A study by JD Power China shows that the percentage of potential new car buyers surveyed that intended to buy a Japanese car dropped from 32 per cent in 2009 to 24 per cent in 2012.
At the same time, the proportion of respondents who said they intend to buy a European car rose from 25 per cent in 2009 to 35 per cent in 2012.
The surveys are borne out in purchases figures - the market share of Japanese cars dropped from 26.6 per cent in 2009 to 22.8 per cent currently.
But politics and geologic events aside, the real reason for the drop in market share is the decreasing competitiveness of Japanese cars coupled with slow adjustments in strategy.
Japanese compact and mid-sized cars are losing ground in the face of competition from German, American and Korean cars.
Volkswagen has introduced a large number of high-tech models in China.
General Motor has focused on development and use of small turbocharged engines.
Ford will equip its next-generation Fiesta with a 6-speed Powershift gearbox.
In contrast, Japanese cars are not offering new technologies that will attract customers.
In the luxury car market, Lexus has registered solid growth, but its hesitation in localisation has cost it in the competition with highly localised German luxury cars.
There are six major Japanese automobile manufacturers in China - Nissan, Toyota, Honda, Mazda, Suzuki and Mitsubishi.
The top three of Nissan, Toyota, Honda planned on double-digit sales growth this year, but operational difficulties caused by Sino-Japanese tension will make it nearly impossible for them to achieve their targets.
The situation is much more difficult for Mazda, Suzuki and Mitsubishi.
Mazda sales decreased 6 per cent in August, with its joint ventures FAW Mazda and Chang'an Mazda decreasing 11 per cent and 17 per cent respectively.
Although Mazda has declared that it will devote a lot more effort to promoting sales, the automobile community still has doubts whether the measures will invigorate the brand in China since the number of its distributors is decreasing.
As well, the Diaoyu Islands conflict has thwarted promotional plans by Mazda for the foreseeable future.
Mazda, Suzuki and Mitsubishi are not in themselves very strong brands. Their long-unsolved problems in joint ventures limits their growth.
The Japanese car industry is confronted by troubles from home and abroad. It faces not only fierce competition from US and European carmakers, but also growth in Korean brands in the small and medium-sized car segments.
The writer is the director of JD Power Asia Pacific Forecasting.