BEIJING (Reuters) -- Toyota and its dealers are quietly maneuvering to allay risks from periodic eruptions of anti-Japan sentiment in China, even as recent sales data suggest a slow but steady recovery for Japanese automakers since the latest flare-up last year.
China sales for Toyota Motor Corp. and other Japanese car makers tumbled after a territorial dispute between Beijing and Tokyo sparked an outbreak of anti-Japanese protests in September last year.
Trade and diplomatic ties between Asia's two biggest economies are prone to sporadic disruptions, a legacy of the lingering bitterness from Japan's wartime occupation of large parts of northeastern China.
As a result, some executives at Toyota's China unit are considering the merit of focusing its sales effort, at least in the shorter term, on southern China, where anti-Japanese sentiment is historically weaker.
In the south, sales of Japanese cars have all but recovered to pre-September levels "as if nothing happened", a senior Toyota executive in Beijing said.
"Our feeling is why spend money to overcome the bias against Japanese products in northern China?" the executive said.
"We could get more bang out of that same money by focusing on southern China where we already have a (relatively) good will towards Toyota and Lexus."
Asked about such a move, a Toyota spokesman said it was focusing on the quality of it products.
"The bottom line: the best thing for us as an auto maker to do in China, and in any market for that matter, is to keep making efforts to come up as quickly as possible with the kind of cars consumers deem desirable and want to embrace," Toyota's Beijing-based spokesman, Takanori Yokoi, said.
Looking to Europe
Meanwhile, Zhongsheng Group Holdings Ltd., one of China's biggest retail-distributors of Toyota and Lexus brand cars, has been trying to cut its reliance on Japanese brands by focusing more on European brands such as Mercedes-Benz and Audi.
The Dalian-based dealer group's strategy is to up the pace of expansion of dealerships selling European cars, while pausing for a while on Japanese brand store openings.
Since last September it has opened two Jaguar Land Rover outlets, and the group's chairman, Huang Yi, said this week two more Jaguar Land Rover stores were under construction and it was applying for rights to open "a few more".
Since last year, Hong Kong-listed Zhongsheng has also opened two new Audi outlets and another two dealers selling Volvo cars.
The moves are aimed in part at addressing the concerns of some investors about "over-exposure" to Japanese brands, which have caused the company's share price to trade on a weaker note since last year.
"We're not de-emphasizing Japanese brands; we will continue to stick with them because in the longer-term we believe Japanese brands like Toyota and Lexus give us good profitable business," group chairman Huang told Reuters in an interview.
Zhongsheng operates a total of 162 stores and is one of China's biggest retail auto distributors. It currently has 48 Toyota and 12 Lexus stores across China and runs Nissan and Honda stores, among other Japanese brands.
Roughly half of its profit comes from selling cars from Toyota and Lexus, where it was expanding until 2011, with the bulk of the rest coming from Mercedes-Benz and other European brands.
"What we're doing, instead, is we're opening more stores selling European brands, like Jaguar Land Rover and Audi to increase the Euro share in our portfolio of brands," Huang said.
Sales in China by Japan's big-three auto makers last month were mixed, reflecting a slow but steady recovery of sales since late last year when volume fell nearly 50 percent year-on-year in some months for some brands.
For Japanese auto makers, the best defence might be to reduce their exposure to China and expand business in other fast-growing markets such as Indonesia, India and Brazil.
And that is precisely what Toyota appears to be doing, slowing the pace of investment in China while accelerating it elsewhere.
Toyota and its group companies pledged late last year to spend an additional $1.2 billion in manufacturing capacity and other capital investments in Indonesia. The firm also said on Monday it plans to beef up its presence in Myanmar, Cambodia and Kenya as part of its broader effort to generate about half of global sales from emerging markets.
Within China, the senior Toyota executive said a focus on the south made sense because the company has a major production base in the southern province of Guangdong and sales of its cars have always been strong in the region.
Moreover, consumers in southern China tend to take cues in consumption from Hong Kong, which has long shown a preference for Japanese brands and products, the executive said. Toyota is still weighing its strategic options, however, and has not made any definitive moves yet.
Toyota had, in fact, been planning a marketing push last year to overcome a bias against Japanese products in the eastern province of Shandong, one of China's biggest auto-purchasing provinces.
The Toyota executive, who declined to be named because of the sensitivity of the subject, said the company never implemented the marketing campaign because of anti-Japan demonstrations that swept Shandong and elsewhere.
Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight, said a possible shift by Toyota and other Japanese brands to focus their sales and marketing resources on southern China was a "natural strategy" given their manufacturing presence in Guangdong.
Still, "longer term they still have to be a player in northern markets, as provinces such as Shandong and Sichuan are poised to displace Guangdong as China's biggest auto-purchasing provinces", Zhang added.