The share price of Toyota Motor Corporation (TM) increased 2.5% to $125.17 on Jan 7, 2015 after the automaker reported a 12.5% year-over-year increase in sales in China to 1.03 million vehicles in 2014. However, the sales volume achieved was lower than the expectation of 1.1 million vehicles, per sources.
Toyota was unable to meet its sales volume target due to slow growth in the world’s largest auto market along with huge vehicle inventory. This situation led to a challenge for some of the automaker’s dealers and created hurdles in selling vehicles.
Dealers of FAW-Toyota Motor Sales Co., which is a sales company of one of Toyota’s joint ventures in China, may have to stop selling FAW-Toyotas and shut down. According to the China Automobile Dealers Association, the closure will be due to the losses they incurred. As a result, the dealers will be seeking 2.2 billion yuan ($350 million) in subsidies from FAW-Toyota in order to cope up with the costs caused by excess inventory.
The auto dealers also complained that they were forced to achieve a sales target, which was very difficult to attain, in order to qualify for the year-end bonus. Foreign automakers, in order to expand their production capacity and achieve a greater market share, usually offer a big year-end bonus.
Unsold vehicles under dealers were the highest in Nov 2014. The total volume was significantly high despite the decline in inventories in December.
Other automakers performed well in China in 2014. General Motors Company (GM) and its joint ventures in China recorded a 12% year-over-year increase in sales in 2014, taking the figure to 3.54 million vehicles. The improved performance was driven by rising demand in the luxury segment and the SUV and MPV segments. General Motors performed better than the overall industry in China, which recorded a 7.5% improvement.
Volvo Cars also performed well in China, which is the largest market for the company. Sales of Volvo Cars increased 33% to 81,221 units in 2014.
Toyota currently carries a Zacks Rank #4 (Sell). Investors interested in the auto industry could consider better-ranked stocks like PACCAR Inc. (PCAR) and Magna International Inc. (MGA), both carrying a Zacks Rank #2 (Buy).
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