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Nissan aims to cut purchasing costs by 15 percent

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Link: http://www.detnews.com/2005/autosinsider/0...4/01-291652.htm

Nissan aims to cut purchasing costs by 15 percent

By Chang-Ran Kim / Reuters

TOKYO -- Nissan Motor Co. aims to slash purchasing costs by 15 percent by March 2008, keeping the same momentum that has fuelled profits to record levels in recent years, the head of its purchasing operations said on Wednesday.

"Basically, the idea is to maintain the same level of purchasing cost reductions as in our previous business plan," Executive Vice President Hiroto Saikawa said in an interview.

"Whether we can do this depends on the balance between the speed of our cost-cutting projects and headwinds such as rising materials prices, but this is certainly the target during the current 'Value-Up' business plan (through March 2008)," he told Reuters at Nissan's headquarters in Tokyo.

During the last three-year business plan that ended in March, Japan's number-two auto maker had targeted and achieved a 15 percent reduction in procurement costs thanks in large part to its joint purchasing activities with Renault , which owns 44 percent of Nissan.

Along with rising vehicle sales, lower purchasing costs have been the main engine driving up Nissan's profits, contributing 131 billion yen ($1.19 billion) to its operating profit growth in the year ended March 31. Consolidated operating profit that year totalled 861.2 billion yen.

Still, that is down sharply from a contribution of 183 billion yen in the preceding year and 227 billion yen in the year before that as a rise in commodity prices such as steel and oil-related products took their toll.

Saikawa, who has worked in Nissan's purchasing department for nearly five years and was promoted to the top post this April, admitted the industry was facing some of the biggest uncertainties in recent memory. But he said Nissan had room to offset such challenges by speeding up its cost-cutting projects.

Among them is the building up of a low-cost supply base in what Nissan calls "LCC", or leading competitive countries such as China and Southeast Asian nations, where the auto maker aims to bring purchasing costs to a level 30 percent lower than those in Japan, Saikawa said.

"Whether we can achieve the (15 percent) target depends on how fast we can do this," he said.

Also on the agenda is using partner Renault's cheap supply bases in markets where Nissan is less established, such as Eastern Europe and eventually markets like Brazil, Saikawa said.

"This is the main area of opportunity that I see in our future work with Renault," he said.

The French company, in return, could piggyback Nissan's experience in China in future, using the Japanese auto maker's improved supply base there for its manufacturing centres in Europe, he said.

Nissan and Renault have targeted the purchasing area as a means of shaving costs from the start of their capital alliance in 1999. In 2001, they formed the Renault-Nissan Purchasing Organization (RNPO), which now handles about 70 percent of the two companies' procurement -- worth about $33 billion a year.

In addition to sharing a chief executive in Carlos Ghosn since April this year, the auto makers are also using common vehicle platforms -- such as the B-segment base for Renault's Modus and Nissan's Tiida series -- and engines to save money.

*** ($1=109.95 Yen)
Additional reporting by Yoshiyasu Shida

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