Nissan to buy cheap parts from China, India

By From Bloomberg| Jun 26 2007
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Nissan Motor Co., Japan's third-largest carmaker, will buy more components from China and India after profit fell for the first time since the company's record loss in 2000.

The automaker will raise global component purchases from low-cost countries to as much as 24 percent of the total, from as much as 14 percent now, said Carlos Ghosn, Nissan's chief executive officer, in an interview in Singapore.

"Frankly, we have no choice," Ghosn said yesterday. "If you don't transfer part of your supply to extremely competitive countries, then there is no way you are going to be competitive in the market."

Buying parts made in countries where wages are 5 percent of those of Japan would help Nissan's profit margins, which lag behind Toyota Motor Corp. and Honda Motor Co. Exports of Indian-made parts may rise almost six-fold to $40 billion by 2015 from about $6.7 billion in 2003 because of demand from automakers including General Motors Corp., according to McKinsey & Co.

"Cheaper parts are key to carmakers cutting their overall costs," said Yoshihiro Okumura, a general manager at Chiba-gin Asset Management Co., which oversees the equivalent of $365 million in assets. "They especially need to buy parts for cars they sell in emerging markets in the local markets - to do otherwise makes no financial sense."

GM expects to buy Indian automobile parts worth $1 billion a year within four or five years, said Nick Reilly, the carmaker's president in charge of the Asia Pacific region, in an interview April 17. Auto parts cost half as much in India as in Europe, he said.

Tokyo-based Nissan expects net income will rise to 480 billion yen ($3.9 billion) in the 12 months ending March 31, from 460.8 billion yen a year earlier. Sales will probably fall 1.6 percent to 10.3 trillion yen. The carmaker expects to sell 3.7 million vehicles this business year.

Nissan's operating margin of 7.42 percent is lower than Honda's at 7.68 and Toyota's at 9.35, according to data compiled by Bloomberg.

"When you reduce your purchasing cost, sourcing is one of the tools," Ghosn said. "The more sourcing toward low-cost countries, the more it's going to help you."

Wages in Japan are about 20 times higher than those in China, according to the Japan Business Federation. Steelmakers are raising prices after paying 9.5 percent more for iron ore this year.

Shares of Nissan, 44.3 percent owned by Renault SA, rose as much as 1.1 percent to 1,333 yen as of 9:41 a.m. in Tokyo.

Nissan missed earnings and sales forecasts last year because of a lack of new models in the U.S. and Japan, its two biggest markets. Nissan also delayed a goal of selling 4.2 million vehicles worldwide by one year, to the 12 months ending March 2010.

The carmaker didn't introduce any Nissan-brand vehicles for 15 months and went 18 months without any new Infiniti-brand models in the U.S., its most profitable market. During that period, Toyota released the fully redesigned Camry sedan and Yaris compact car, while Honda introduced revamped CR-V and Acura MDX sport utility vehicles in the United States.

Ghosn said Nissan will consider introducing a car priced as low as $3,000 depending on the success of similar low-cost models planned by companies including Tata Motors Ltd. The Indian carmaker plans to introduce a car priced as low as 100,000 rupees ($2,500) next year, which will make it the nation's cheapest automobile.

"If this represents an opportunity, then there is no doubt that we will be coming with a product like this in the future," Ghosn said.

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