The Nissan Motor Co., the third largest automaker in Japan, will raise global auto parts purchases from low-cost countries such as China and India to as much as 24 percent of the total, from 14 percent after profits fell for the first time in seven years last year, said Carlos Ghosn - Nissan's CEO.
"Frankly, we have no choice... 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," Ghosn said last Sunday. Recently the company had reported a decrease in profits, for the first time since its record loss in 2000.
Nissan is not the only automaker to entertain such a decision. Detroit-based General Motors Corp. also announced their plans to source more parts from India. GM earlier announced its plan to acquire Indian automobile parts worth $1 billion a year within four or five years, said Nick Reilly, the company's president in charge of the Asia Pacific region. Auto parts cost half as much in India as in Europe, he added.
Saving on the company's biggest expense may help Nissan achieve its profit goals this year after net income dived and the Honda Motor Co. took over Japan's second largest automaker spot. According to McKinsey & Co., exports of Indian-made parts may increase almost six fold to $40 billion by 2015 from about $6.7 billion in 2003 because of rising demand.
Tokyo-based Nissan expects net income will increase to 480 billion yen or $3.9 billion in the 12 months ended 31 March, from 460.8 billion yen in 2006. Sales are expected to decrease 1.6 percent to 10.3 trillion yen. The Japanese automaker expects to sell 3.7 million vehicles this business year.
According to Bloomberg data, "Nissan's operating margin of 7.42 percent is lower than Honda's at 7.68 percent and Toyota Motor Corp.'s at 9.35 percent. Ghosn added, "When you reduce your purchasing cost, sourcing is one of the tools."
Shares of Nissan, 44.3 percent owned by German Renault SA, plummeted 0.8 percent to 1,319 yen on Friday in Tokyo. Nissan missed earnings and sales forecasts last year because of a lack of new models in the US and Japan, its two biggest markets. The automaker also delayed a goal of selling 4.2 million vehicles worldwide by one year, to the 12 months ending March 2010.
The automaker did not introduce any Nissan-brand vehicles for 15 months and went through 18 months without any new Infiniti-brand models in the US, its most profitable market. Now, and other parts are expected to cost less.
Ghosn said that 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 automaker intends to launch a car priced as low as Rs one lakh or $2,500 in 2008. The new car will be 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 noted.
Separately, Nissan also announced production, sales and export results for May 2007. According to the report, the global production of the automaker increased 6.9 percent year-on-year to 262,572 units.
Nissan sales in the US grew 7.4 percent year-on-year to 93,062 units, boosted by increased sales of the new Altima, Sentra, Versa and the Infiniti G35. In Europe, the new Qashqai boosted Nissan sales to a total of 50,083 units, exceeding the previous year's results by 3.6 percent. Nissan's exports decreased 30.8 percent to 28,891 units, compared to the same month in the year prior.
