TOKYO (Bloomberg) -- Nissan Motor Co.'s planned $3,000 car for the Indian market will increase the company's profitability as it takes advantage of its local partner's low-cost production techniques, a company executive said.
In talks with Bajaj Auto Ltd., “we discovered that their margin on three-wheeler activities is by far above our current margin on our four-wheeler activities,” Gilles Normand, Nissan's corporate vice president in charge of Africa, the Middle East and India, said in an interview yesterday in Yokohama, where Nissan is based. The low-cost car “will contribute to our growth in terms of volume and profitability.”
Nissan may post an operating margin of 4 percent for the year that ended March 31, according to a company forecast, compared with Bajaj's 10.5 percent for the year that ended in March 2009. The Pune, India,-based company didn't make a forecast for the most recent fiscal year.
The Japanese carmaker plans to introduce a low-cost vehicle in 2012 to compete against Tata Motors Ltd.'s $2,500 Nano, the world's cheapest passenger car, and take advantage of Indian expertise in low-cost production. About 50 percent of the Indian four-wheel auto market consists of models priced below $8,000, Normand said.
Questioning the possible benefit
Bajaj is India's largest maker of three-wheel auto rickshaws used as taxis and goods carriers.
“Just because the three-wheeler is cheap with high margins, doesn't necessarily mean Nissan's car will be, too.” said Koji Endo, managing director of Tokyo-based Advanced Research Japan. “The question is to what extent Bajaj's production techniques can be applied to four-wheelers.”
Development and plant depreciation costs are other factors to consider, Endo said.
The two automakers have yet to begin developing the model and haven't decided how to share development and production costs, Normand said.
“As of today, we have not engaged actually in any cash-out,” he said. “We are still at the very early stage of the project.”
Nissan CEO Carlos Ghosn said in November the car would be introduced in 2012, a year later than planned because of delays in fixing details of the product.
The company said in a May 2008 statement that Nissan, its largest shareholder Renault SA, and Bajaj would form a venture that would produce a low-cost car at a 400,000 capacity plant in Maharashtra, India. Sales were slated due to start in “early 2011.”
Nissan also expects its Nano competitor will be profitable as most buyers of Tata's model choose the highest grade, not the base model, Normand said.
Fifty percent of the initial 203,000 customer orders were for the top-end Nano LX, which costs 185,375 rupees ($4,183), compared with 20 percent for the most basic version, Tata said in May.
Nissan is cutting costs by buying parts locally. At its plant in Chennai, southern India, where it will start building the Micra subcompact next month, 65 percent of 2,600 components come from suppliers in India, Normand said.
The Micra, which will move from Nissan UK plant, is the first model Nissan is producing in India. Four more will follow by 2012.
Nissan plans to export 110,000 units annually from India by fiscal 2011, making it the company's fourth-biggest export base “within the next three years” after Japan, North America and Thailand, he said.
Including three import models, Nissan plans to sell 100,000 units a year in India by 2013, compared with 360 sold in the year ended in March.