Nissan Eyes Future Growth in China Autos

| About: Nissan Motor (NSANY)
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In today's Wall Street Journal Asia edition, Yoshio Takahashi comments on Nissan's China strategy in: Nissan Plans Auto-Financing Venture in China.

Toyota and Volkswagen already have auto-financing services in China. Nissan plans to launch one by the end of next year in a venture with its local partner Dongfeng Motor Group. The idea is to increase sales volume without hurting margins or the company's brand. Nissan's Joji Tagawa, VP in charge of the company's treasury and investor-relations operations puts it this way:

"Instead of cutting prices, for example, we can offer lower interest rates" on loans to attract customers.

Nissan is aiming for at least 10% of its customers to use financing because it would be difficult to for the new finance company to be profitable at a ratio of less than 10%. Tagawa admits the new business will be unprofitable for the first few years but is targeting 10-15% of sales financed by 2010.

Presently only a small percentage of Chinese customers use financing, instead preferring to pay in cash. Tagawa comments that growth is expected in demand for auto-financing services like has happened in the U.S. and Japan but it is difficult to predict how fast it will grow.

Comment: News of Nissan's plans to establish a financing business in China and separate news of plans to increase auto parts production in China to serve the rapidly growing Chinese market (reported by the Nikkei Shimbun) sent its ordinary shares higher by 2.4% to 1,303 yen ($22.30 ADR equivalent). In the latter case investors see improved margins given lower production costs in China.

Another WSJ article today commented on the use of expanded incentives by auto companies ahead of the Labor Day holiday. Nissan extended its annual Labor Day promotion of offering 90 days of deferred finance payments to now offering 130 days. Nissan is trying to move remaining 2006 inventory and get off to a strong start with 2007 models as it will role out some all-new models this autumn. Financing incentives were favored over cost cutting, similar to the China case above, in an effort to sustain profit margin and brand image.