Tuesday, June 10, 2003
Nissan drives into China with $2bn car venture
REUTERS
BEIJING: Japan's third-largest car maker, Nissan Motor, said on Monday its $2bn joint venture with China's third-largest car firm will open on July 1, with six new models lined up to tackle the fast-growing market.
Nissan, which is in the middle of a corporate turnaround, teamed up with Dongfeng Motor last September, finally giving the Japanese auto giant a foothold in one of the fastest-growing car markets in the world. Although Nissan trails rivals like Honda Motor and General Motors in China, what it has lost in time it is trying to make up for with scope, analysts said. The venture will make 220,000 cars and 330,000 commercial vehicles a year by ' 06, executives from the companies said.
Under one of the broadest alliances ever between Chinese and foreign automakers, Nissan said it has put up $1bn in cash, while Dongfeng is providing assets and factories worth an equal amount. "It's quite a risky bet. But unless they take such a risky step it'll be difficult for them to catch up," said Lawrence Ang, an auto industry analyst with Deutsche Securities Asia. "Even though they are late, they are dedicated to achieving something in China," Mr Ang said.
The new firm, called Dongfeng Motor, will launch six passenger car models over the next few years, beginning with a compact model called the 'Sunny', which will be made in the southern city of Guangzhou and which goes on sale this year. That would be followed by a luxury sedan called the 'Teana' next year.
China's car market is booming, fuelled by rising incomes, a flood of new economy models and lower import tariffs. Last year, sales soared more than 50% to top 1.1m vehicles. In April, more than 1,67,000 cars were sold, 63% more than a year earlier, according to data from industry research firm Automotive Resources Asia. "Dongfeng Motor will be key to opening Nissan's new frontier in China," Nissan chief executive Carlos Ghosn said in a news conference broadcast via the internet from Wuhan, where the new firm is headquartered.
However, sales growth in China is expected to cool to the low double digits in the next several years, which is likely to push car makers into slashing prices as they fight for market share. "My worry is profitability, which will come down quite far," Mr Ang said. "What they care about is market share, not profitability. If you don't have economies of scale, your costs are high."
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