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Nissan Motor Co, Japan's second largest automaker, has vowed to more than double its own-brand sales in China this year and cut costs to check a profit margin tumble across the sector.
The company aims to sell nearly 180,000 own-brand vehicles in China this year, said Toshiyuki Shiga, Nissan's newly-appointed chief operating officer.
Nissan's own-brand sales reached 80,000 units in China last year, according to sources at its China operation.
"We will increase the amount of locally-made parts in our vehicles made in China to cut costs to improve our profit margin," Shiga said.
The operating profit margin of Dongfeng Motor Co Ltd, Nissan's joint venture with China's Dongfeng Motor Corp, declined to 5.6 per cent last year from almost 8 per cent in 2003, according to figures provided by Shiga and the venture.
The venture reported 2.5 billion yuan (US$302 million) in profits on sales of 44 billion yuan (US$5.3 billion) last year, Shiga said.
He attributed the profit margin decline largely to the soaring costs of raw materials, especially steel, and the venture's price cuts amid fierce competition in the slowing car market last year.
"But we have confidence that the venture's operating profit margin will reach our antecedent target of 10 per cent by 2007," he said.
According to a plan revealed in 2003, Nissan expects the venture's profits and turnover to reach 8 billion yuan (US$966 million) and 80 billion yuan (US$9.66 billion) respectively in 2007.
However, analysts say the venture's profit margin target is not attainable.
"The target will be very hard to achieve as car prices in the domestic market will remain on the downward trend in the period to 2007 due to increasingly fierce competition," said Zhang Xin from Guotai & Jun'an Securities Co Ltd.
"Automakers in China enjoyed lofty profit margins thanks to high vehicle prices in the past. But the margins have dropped sharply in recent years and will continue to fall," Zhang told China Daily.
He predicted the average profit margin of automakers in China will decrease to less than 6 per cent this year from 6.8 per cent last year and 12 per cent in 2003.
"To cut costs by all means has become one of the most pressing tasks for automakers in China to preserve profit margins," said Song Bingsheng from China Securities Co Ltd.
(China Daily April 12, 2005)
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