Dongfeng Motor to raise prices & sales to fight costs

Shanghai, May 30 (Gasgoo.com) Amid the soaring raw materials costs, Dongfeng Motor Co Ltd, a joint venture between the Dongfeng Motor Corporation and Nissan Motor, is considering raising the prices of some models in its lineup to ease the unbearable cost pressures. The JV also expects to sell 1 million vehicles annually in the next five years, up from 610,000 last year, as a "small-profits, big sales" policy to balance the cost surge, said Kimiyasu Nakamura, president of Dongfeng Motor, to reporters on Wednesday.

The joint venture will also boost the local production of its passenger vehicles for the Chinese market to 90% by 2012 from the 70% in 2007 to enhance its cost competitiveness, and will introduce new-energy vehicles to this fastest growing market. The company will build a new 1 billion yuan ($144 million) plant to underpin its lagging commercial vehicle unit. "We have competitive advantages in passenger vehicles in China, but not in commercial ones," said Nakamura.

The factory will begin production in 2010 in the Central China's city of Zhengzhou, augmenting an existing plant. The new plant will increase annual capacity by 120,000 vehicles a year to help Dongfeng reach its goal of doubling the growth rate of commercial vehicle exports to 10% a year by 2012. The company is also in talks with Volvo, the world No 2 truck maker, about cooperating on the research and development of commercial vehicles.

The joint venture, like automakers around the world, has been hit by the rising costs of materials. "Rising raw materials costs are the biggest headache for the company," Nakamura said. "We thought the problem as a temporary one in the past, but it has turned into a structural problem." Costs would continue to rise into 2009 and 2010, he said.

However, those worries did not dent its optimism for the fast growing domestic market. Nakamura said that Dongfeng Motor has to deal with the growing costs of raw materials by raising prices of some car models and reducing the manufacturing costs at the same time. Nissan Motor has decided to mark up the prices of its products to face the rising raw material costs.

Nakamura said his company planned to launch 15 new commercial and passenger vehicle models in the next five years. By 2012, the JV is projecting annual sales of 100 billion yuan ($14.39 billion), up from 59.32 billion yuan ($8.54 billion) last year.

The joint venture sold 101,769 cars in the first four months of 2008, 23.2 percent more than a year earlier.

Dongfeng Motor Corporation also has joint ventures with PSA Peugeot-Citroen and Honda Motor.