Nissan says Datsun brand may generate operating margins of 7%

The Datsun Go, shown, was launched in India in July.
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TOKYO (Bloomberg) -- Nissan Motor Corp. said its budget Datsun brand will generate operating margins of as high as 7 percent because of its no-frills designs and by sharing the parent's development facilities and distribution network.

Datsun's operating profit will probably average between 4 percent and 7 percent of revenue through the life cycle of the brand, Vincent Cobee, head of Datsun, said in an interview this week at Nissan's headquarters in Yokohama. Still, profitability of Datsun cars will depend on the markets they're sold in and other situations, he said.

The brand may help determine the direction of Nissan's overall earnings as Japan's second-largest carmaker is counting on Datsun to account for at least one third of Nissan's total deliveries in countries from India to Indonesia.

Revived after more than three decades, Datsun will target emerging markets with cars costing less than $6,500, while Nissan's namesake brand goes after mainstream motorists and Infiniti targets the high-end market.

"The future growth in auto market will come mainly from emerging countries," said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo. "Datsun is a new attempt, a touchstone for not only Nissan but also the auto industry of how to make money from low-cost cars in these markets." Low-cost cars in emerging markets would typically generate operating margins of 2 percent to 3 percent at most, he said. "I'm still wondering if it really will make any profit," he added.

Margin target

Nissan CEO Carlos Ghosn is aiming to raise the company's overall operating margin to 8 percent by March 2017. The margin shrank to 5.4 percent in the year ended March 2013 from 5.8 percent in the previous 12 months. Total deliveries in India, Indonesia and Russia will probably reach 400,000 units in three years, Cobee said. He declined to give a projection for sales in South Africa, the fourth market Datsun is poised to be introduced.

Nissan has unveiled two Datsun models, a hatchback named Go in India and a three-row wagon called Go+ in Indonesia last year. The automaker will offer seven models in three years in four markets, Cobee said. Based on marginal profit, an internal profit measure that strips out fixed costs and some variable expenses, Cobee said the cars will make money from day one.

"The red line to never cross is marginal profitability, which means when you sell one car, you sell it for more than it costs to make, forgetting about the fixed cost," said Cobee. "Selling below marginal profitability is a sin."

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