Beijing (AsiaNews/SCMP) – For Toyota, it is a very bumpy road to China. In the first seven months of this year, sales of the Vios, one of its top three models in the mainland, tumbled more than 30 per cent year on year, lagging behind the rival models of Honda Motor, Kia Motors and General Motors. Its total sales for the period were about 85,000, less than 4 per cent of the passenger car market. The Japanese carmaker is paying the price for arriving late to China, but, by 2010, wants to sell one million vehicles.

"The China market is growing at one million vehicles a year," Vice-chairman Fujio Cho said. "It is only a matter of time before it becomes the biggest car market in the world. Our initial target is 10 per cent [. . .] in 2010."

Uneasy of the political risks caused by anti-Japanese feelings in China, the firm underrated this market. It did not start producing cars locally until a decade after market leader Volkswagen. It has a national sales network of 150 dealers, compared with more than 1,000 for Volkswagen. By the time it got its marketing act together, it had missed the one-time demand explosion of 2001-03.

Annual growth in the market will slow to about 10 per cent this year with sales of about 5.5 million vehicles, down from 15 per cent last year and 75 per cent in 2003.

Rising oil prices, increasing car and parking costs, tighter bank credit and the expectation of lower prices are all hurting demand.

In its latest research report, JP Morgan told investors they had not seen the worse yet.

"Past experience shows that car demand will retreat once there are signs of oversupply and price cuts as jittery consumers postpone their car purchases until retail prices stabilise to avoid losses," the report said.

Toyota Motor Corporation is the world's largest carmaker second only to General Motors

In the last fiscal year, its sales totalled 7.4 million units, up 10.3 per cent from a year earlier.

Japan accounted for 40 per cent of those sales, North America 33 per cent and Europe 13 per cent, with China a fraction of the remainder.

In China, Toyota has set up a joint venture with First Auto Works in Tianjin and another with Guangzhou Auto Group in Nansha.

This year, the company expects to sell 145,000 cars and is planning to launch new models.

Analysts expect Toyota (and Hyundai) to take away bits of other carmakers' market share. These companies should do better than those from Europe and North America because their models and service are more suitable to Chinese consumers.

South Korea's Hyundai started production in Beijing in December 2003 and in 2004 had already sold 150,000 cars in 2004, partly by lowering prices.