Nissan to Buy More Auto Parts in China

By: RyanThomas

Earlier this month, it was reported that China has overtaken Germany as the second country with the most auto parts exported in the United States. The auto parts industry in the country may be on its way to further growth as Nissan showed its interest in increasing their auto parts sourcing in China.

The third largest Japanese car manufacturer, Nissan, recently announced that they will buy more auto components in China and India in the near future. The announcement came after the company suffered its first profit reduction since Carlos Ghosn took the reins of the company.

Ghosn, considered the savior of Nissan, claimed that they will increase their auto parts purchases from low-cost countries to 24 percent of the total. Currently, only 14 percent of the total auto parts used by Nissan are purchased from low-cost countries such as China and India.

"Frankly, we have no choice," says Ghosn of the decision to increase auto components purchase from China. "If you don't transfer part of your supply to extremely competitive countries, then there is no way you are going to be competitive in the market."

The move to increase their purchases from countries with average wages five percent lower than Japan is a good one on the part of Nissan. According to experts, this step will give Nissan's profit margin a boost. Currently Nissan's profit margin trails that of fellow Japanese car makers Toyota and Honda.

Aside from benefiting the car manufacturer, a move will also give a boost to the economy of the country where they will be buying auto components in India alone, it is expected that Indian-made auto parts export will be worth $40 billion by 2015 as car manufacturers are looking to procure their auto parts from the country. In 2003, India exported approximately $6.7 billion.

General Motors announced that they are planning to purchase about $1 billion worth of Indian-made automobile parts for the next four to five years. The announcement came from Nick Reilly, General Motors' president in charge of the Pacific region. The reason for the step taken by General Motors is that auto parts from India costs half as much as in Europe.

Due to the demand for Indian-made auto parts from car making giant General Motors, it is expected that the Indian auto parts industry will receive a boost. The same thing could happen in China as Nissan is expected to push through with their announcement.

"Cheaper parts are key to carmakers cutting their overall costs," said Yoshihiro Okumura, the general manager of Chiba-gin Asset Management Co. "They especially need to buy parts for cars they sell in emerging markets in the local markets - to do otherwise makes no financial sense."

With the advantages of purchasing auto parts like in China and India fully known to Nissan, it is expected that Nissan will be able to capitalize and turn a profit increase this business year.

"When you reduce your purchasing cost, sourcing is one of the tools," said Ghosn in an interview. "The more sourcing toward low-cost countries, the more it's going to help you."

With the knowledge that the strategy will be beneficial to them, it is, of course, safe to infer that Ghosn is doing his best to give Nissan shareholders the profit that they have failed to generate last year.

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