[lbo-talk] Nissan to build $362m China plant

uvj at vsnl.com uvj at vsnl.com
Fri Dec 31 12:28:22 PST 2004


The Economic Times

Wednesday, December 22, 2004

Nissan, local partner to build $362m China plant

REUTERS

SHANGHAI/TOKYO: Japan’s Nissan and a local partner will spend $362m on an engine plant in southern China to help it sidestep hefty import tariffs on auto parts. The plant, to be built in Guangzhou by Nissan and China’s Dongfeng Automotive Investment, will start up in early ‘06 and be run by their joint venture, Dongfeng Motor, both companies said on Tuesday.

Building engines locally not only saves Nissan money — imported engines are currently taxed at as much as 30% to foreign players to localise parts sourcing.

Foreign parts makers such as Delphi, Visteon and France’s Valeo are increasing investment in China, further raising the quality of domestically available components and reducing the need for automakers to import.

“It reduces costs and is an easy way for foreign car makers to raise the local content of their products,” an analyst said.

Nissan’s investment underscores its confidence in a sharply decelerating, cut-throat market where tightening credit conditions are sapping demand.

Car sales should grow 10-15% this year after doubling to 2m units last year.

Executives complain it can be tough finding suppliers or getting parts shipped quickly through a creaky logistics web. Engines are one of the most costly and complex parts of a car.

Logistics and other non-production costs are estimated to make cars sold in China up to 30% more expensive than in other countries, though under World Trade Organisation commitments, tariffs on imported parts could slide to about 10% on average in ‘06, less than half of what they are now. Volkswagen and Toyota also have similar engine plans.

Volkswagen said earlier it would spend 540m euros ($723.2m) on two engine plants to help boost engine-making capacity to more than a million units per annum eventually.

It can already make about 750,000 engines a year — nearly its entire local production capacity — in China, its largest market after Germany.

Nissan‘s new factory will supply the company’s plants in the southern boomtown of Guangzhou and elsewhere in China.

Capacity is expected to hit 360,000 units annually, with a workforce of 1,500 by ‘08, Dongfeng Motor said in a statement. Nissan plans to quadruple car sales to 300,000 by ‘07.

“The construction of the engine plant is a significant step forward in (Dongfeng’s) strategic development in China, and it will provide a solid base for our business expansion,” Mamoru Yoshida, the joint venture’s managing director, said.

Guangzhou is becoming a focus for Japanese auto makers. Apart from Nissan, a relative latecomer, Honda and Toyota are also present in the city, about two hours by train from Hong Kong.

Nissan and Dongfeng opened a plant in May in Guangzhou to make Bluebird and Sunny sedans, with capacity for 150,000 units a year. If another plant in central Hubei province is included, Nissan’s venture has the capacity to make 240,000 cars a year.

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