Nissan, Renault, Mahindra to Build Plant

Chennai India February 23, 2007; Kae Inoue and Anand Krishnamoorthy writing for Bloomberg reported that Nissan Motor Co., Japan's third- biggest automaker, will join Renault SA and Mahindra & Mahindra Ltd.'s venture to build cars in India, two people familiar with the plan said.

The three automakers will make an announcement Monday, the people said. The companies will set up a factory in Southern India's auto hub of Chennai, the people said, who declined to be identified before the announcement is made public. The factory will be 50 percent owned by Mahindra, while Nissan and Renault will each have a 25 percent stake, the people said.

Carlos Ghosn, who heads Nissan and Renault, cut Nissan's earnings forecast this month amid a sales slump in the U.S. and Japan, Nissan's two biggest markets. Nissan expects car demand in India, Asia's fourth-largest economy, to increase by more than 10 percent a year as economic growth boosts salaries.

``India is the place to be in the auto industry now,'' said K.K. Mital, who helps manage 1.75 billion rupees ($40 million) at Escorts Asset Management Co. in New Delhi. ``The demographics are in favor of strong, sustained growth here and that is why auto companies are investing billions.''

In November, Nissan said it would make a decision by March 9.

``We're close to being ready to make an announcement,'' said Nissan spokesman Simon Sproule. ``At this time we have nothing to add.''

Mahindra President Pawan Goenka declined to comment.

Nissan shares fell 0.3 percent to 1,381 yen at the close of trading in Tokyo today. The shares have declined 3.6 percent this year compared with an 8 percent increase in the benchmark Topix index.

Shares of Mahindra dropped 0.9 percent to 869 rupees at 12:13 p.m. in Mumbai. The stock has fallen 4.1 percent this year compared with the benchmark Sensex index's 0.9 percent gain.

Indian Market

Volkswagen AG and General Motors Corp. are entering India or expanding. Last year, automakers announced plans to spend as much as $5 billion in new factories in the south Asian country by 2012. Almost half of India's 1.1 billion people are younger than 25.

The automakers plan to boost sales in India, where only seven in every 1,000 people own a car, and where economic growth of as much as 9 percent a year is boosting consumers' purchasing power.

India had the highest average salary increase in the Asia- Pacific region in the past year, according to results of a survey by human-resources consulting firm Hewitt Associates Inc.

Production Capacity

Tokyo-based Nissan canceled a plan to build a factory in India with Suzuki Motor Corp. in November because it needed more production capacity than Suzuki could meet.

Nissan, passed by Honda Motor Co. as Japan's second-biggest carmaker last year, introduced only one new model in the first half. Ghosn said the carmaker's U.S. sales for the 12 months ending in March would fall short of his goal of 1.1 million. In June, he cut the sales target for Japan to as low as 800,000 vehicles from an original goal of 846,000.

The factory that the three carmakers will share will have a capacity of 300,000 vehicles a year by 2009 and 500,000 by 2012.

Separately, Renault and Mumbai-based Mahindra will begin production of Logan sedans in India in the second half of this year. The venture will build as many as 50,000 cars a year. Nissan will not take part in this venture.

Mahindra, which currently specializes in sport-utility vehicles and tractors ``will benefit from access to technology,'' wrote Jamshed Dadabhoy, Citigroup Inc.'s Mumbai- based analyst in a note to investors.

Small Cars

Nissan still plans to buy small cars produced in India by Suzuki, Japan's biggest minicar maker, for sale in Europe. Nissan will continue its plans to cooperate with Suzuki in emerging markets.

Ghosn in November said he expects the Indian market to grow to more than 2 million vehicles by 2010 and continue beyond that to become ``one of the world's biggest markets.'' Indians bought 1.14 million vehicles in the year ended in March.

Nissan is 44.3 percent owned by Renault and the two companies have been partners since 1999. They share parts and engines. Extending the cooperation in emerging markets will be more cost-effective than working with new partners, Ghosn has said.