Tim O'Brien | Oct 31, 2012

Honda can't take a trick. Despite having rebounded strongly in global sales after its 2011 "annus horribilis" of the tsunami disaster and Thai floods, Honda has now cut its full-year global net profit forecast by 20 percent.

Largely to blame is a 40 percent drop in September sales in China, and an October that's likely to tell a similar tale.

The Japanese carmaker is now projecting a ¥375 billion (AUD$4.6 billion) net profit for the full year, a sharp downward revision on its initial forecast of a ¥470 billion profit (AUD$5.7 billion).

Toyota and Nissan, hit by the same ill-winds of failed diplomacy, are also expected to announce similar blood-letting on the balance sheets. Toyota's sales in the Chinese market fell a monstrous 49 percent in September.

The reason? A few piles of mostly uninhabited rock poking up out of the South China Sea. To the Japanese, they are the Senkaku Islands; to the Chinese, the Diaoyu.

While currently 'administered' by Japan, it's in a dangerous three-way stand-off with China and Taiwan over who owns them. Japan has claimed sovereignty since the 19th century; China's claim is rooted in the 14th century.

A half-dozen barren rocks they may be - some smaller than a football ground - but there's oil below them, and passions are running so hot in China that Japanese cars and businesses have been torched in a wave of anti-Japanese protests that have swept across the country.

Caught in the crossfire resulting from these nationalistic frictions, and now suffering intense collateral damage in the burgeoning Chinese car market, are the big Japanese carmakers.

There are, of course, beneficiaries. Hyundai posted record sales in China in September, up 15 percent to 84,188 sales; GM likewise had a record month with 244,266 sales. Volkswagen, BMW and Dongfeng-PSA were also racing.

Japanese automakers can only hope that the current unpleasantries will pass. Having your products put to the torch in the world's biggest car market is the stuff of nightmares for car company boardrooms.

There is more than a bit at stake here. China is, after all, Japan's largest trading partner; Japan, conversely, is China's fourth-largest market. Chinese-Japanese trade topped USD$340billion in 2011.

Those few rocks could sink some very big balance sheets over the next few years - and not just for carmakers.

Come November 5, all eyes will be on Toyota and Nissan when they are each expected to announce their quarterly earnings.

Get the best deal on this car!
Get a great deal from our national accredited supply network. Fill in the form or call 1300 438 639
 
Name required
Last Name should be a hidden field. Please delete if you are a real person.
Valid Phone required
Valid Postcode required
Valid Email required
Thank you for your enquiry.
One of our accredited supply network will be in touch in the next 24 hours.