JAPANESE CAR EXPORTS TO CHINA: VALUE AND QUALITY TRUMP POLITICS

5/24/13

It looks as though Chinese car buyers have gotten over their politics spawned aversion to Japanese cars.  (See my 10/10/12 post in the now defunct Rant Finance entitled WE’VE FOUND THE ULTIMATE VALUE INVESTOR!, reproduced below for your convenience.  And, no, I didn’t buy a bunch of TM, HMC and NSANY stock, which have since surged, after writing that now immortal missive, even after seeing the buying opportunity, which demonstrates one of the reasons I don’t trade nearly as actively as I once did.)   Japan shipped 16,000 vehicles to China in April, 2013, up from 4,417 units in October of last year, the low reached at the height of the tensions surrounding the, depending on whom you are talking to, the Senkaku or Diaoyu Islands in the East China Sea.  Last month’s 16,000 units were still below April, 2012 levels, but the more than three fold increase in shipments from the bottom is a sure sign that things are turning around.

One knew that Chinese consumers would be buying Japanese cars again despite the nationalistic whoop-whoop that dissuaded them from doing so for a time.  First, we had intrepid consumers like Mr. Zhou San, the ultimate value investor, who, quoted in the aforementioned and below reproduced post, said

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So Mr. Zhou would risk being beaten within an inch of his life if he could get a good enough deal on the car; I must have Chinese cousins, but I digress.

Then we have Mr. Yan Ke, a 33 year old Shanghai information technology project manager (Talk about stereotypes!), who is quoted in the Wall Street Journal as saying, after buying a sharp Nissan Qashqai (pictured…not Mr. Yan’s Qashqai, but a representative Qashqai),

“I wanted to buy this car a year ago.  I’ve been saving money for it.  (Saving money for it!  What a concept!  But I digress.)  I don’t give a damn about the Sino-Japanese tensions.”

Mr. Yan is not at all unique; his habit of actually saving money in order to buy something may seem as foreign to Americans as his name and the brand name of his car, but he is not unique.  He simply, like most people, doesn’t give a damn, as he puts it, about silly squabbling of politicians over islands that may or may not have much value beyond their ability to satisfy jingoistic impulses.  Whether one finds that sentiment admirable or not, it reflects reality; people want to live their lives, make a living, get the most for their buck (or yuan), and take care of their families.  The games politicians play matter little to them; apparently, though, the pols didn’t get the memo, but I digress once again.

And speaking of value, one knew that Chinese consumers would still be willing, indeed in line, to buy Japanese cars.  For all the catching up U.S. “domestic” companies have done, and for all the (largely, but not always) baffling appeal that overpriced European (often, but not exclusively) troubleboxes have for consumers in, among other places, China and the United States, the Japanese still make the best, most reliable, most value laden cars for the broad range of consumers.   And competition from places like Korea (See my already seminal 5/20/13 piece, I TEST DROVE A KIA TODAY…) only make them better…and more desirable.   Consumers like Messrs. Yan and Zhou, and Smith,  Jones, Kowalski, and O’Brien, continually affirm that sentiment…or fact.

PROMISED REPRODUCED POST FROM RANT FINANCE

WE’VE FOUND THE ULTIMATE VALUE INVESTOR!

10/10/12

Value investors, as most readers of Rant Finance know, are people who like to buy stocks, or any investments, that they consider cheap.   Cheapness can be determined in terms of price/earnings (“P/E”) ratio, dividend yield, or other factors.   The overriding point seems to be that, while no investor wants to buy a lousy company, value investors are not necessarily looking for great companies.   They are looking for good, or at least passable, companies that are undervalued by some metric the investor deems important.  This is an old, tried, and largely true approach to investing that appeals to, among others, yours truly, at least to a certain extent.

With that background, consider what is going on with the Japanese auto companies in China.   Since China and Japan, among others, are squabbling over ownership of some islands in the East China Sea (See my 8/23/12 post in Rant Political entitled EXPANSION OF MISSILE DEFENSES IN ASIA…PROTECTING OUR INTERESTS OR PAYING BACK THE “DEFENSE” CONTRACTORS?), and the Chinese and Japanese politicians are, like politicians anywhere, concerned primarily with keeping their jobs, nationalist fervor has been whipped up throughout east Asia, but perhaps especially so in China.  One of the manifestations of this fervor is a near blanket refusal on the part of Chinese consumers to buy Japanese branded cars.   Not only will they not buy Japanese cars, but the irate Chinese have taken to street demonstrations that involve the destruction of Japanese cars and, in some cases, their drivers; last month, a driver of a Japanese car in Xi’an was beaten into partial paralysis by an angry mob.  From the coverage we see of these near riots, one wonders why no one has been killed yet.  

How much sense all this makes is a valuable point of digression.   These “Japanese” cars are built in China by Chinese workers using mostly Chinese parts.   Chinese industrial policy dictates that few cars, and mostly only very upper end luxury models, are imported.  So the cars that are being trashed, in some cases, are really Chinese cars; just as the Toyota Camry, for example, is the most American car an American consumer can buy, the “Japanese” cars that are now being used as flaming party favors by rioters on a lark are really Chinese cars.   So who’s hurting whom?  I digress, but I do so valuably.

Into this fray steps Mr. Zhou Shan, a Chinese citizen who works for Baidu, who states

“I won’t buy a Japanese car unless it is very, very cheap because purchasing a Japanese car is dangerous now.  People would beat not only the Japanese car, but also the car owner, when something goes wrong with Sino-Japan relations again.”

So there you have it; Mr. Zhou is aware that it is physically perilous to buy and drive a Japanese car, that doing so might result in his being beaten to within inches of his life, but he would do so if it is “very, very cheap.”  Ladies and gentlemen, we have found the ultimate value investor.

Many of you doubtless started to read this thinking that yours truly, as a guy who has made a dollar or two trading and investing in car stocks at various points in his career, would offer advice on Japanese car stocks at these levels.  All I can say at this stage is that I’m getting interested because it appears that the stocks are starting to reflect overly dire consequences from their Chinese exposure for the likes of Nissan (NSANY), Toyota (TM), and Honda (HMC).   But never (okay, rarely) wanting to try to field a falling knife, or getting between China and Japan when they decide to mix it up (a position nearly as perilous as getting between Jesse Jackson, Sr. and a television camera, but I digress), I think I’ll watch a while before getting interested in these stocks from the long side.