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Soaring steel costs to drive up car prices: Nissan CEO
by Staff Writers
Yokohama, Japan (AFP) June 25, 2008


Soaring steel costs will force consumers worldwide to pay higher prices for automobiles in the coming years, Nissan Motor Co. chief executive Carlos Ghosn warned Wednesday.

Surging raw material costs are eating into automakers' profits, even as rocketing fuel prices weigh on their sales, particularly those of large trucks and sports utility vehicles in the United States.

Higher material prices are the "single most important challenge facing the industry," Ghosn said at the group's shareholder meeting in Yokohama.

"All car manufacturers will increase prices. It's a question of time. How can you not increase prices if the price of raw materials goes up 100 percent?"

Nissan has already announced price rises in the United States and Europe.

"Japan is not going to be the exception," said Ghosn, who also heads Nissan's French partner Renault.

Baosteel, China's largest steel maker, this week agreed to nearly double the price it pays mining group Rio Tinto for high-grade iron ore.

Ghosn said steelmakers were preparing to pass on the increased cost to automakers.

"It's a question of time before this comes and hits us," said Ghosn. "We have no choice but to increase prices."

Automakers will have to raise their prices by about two or three percent in 2008 if they want to offset the rising cost of raw materials, he said.

The price of iron ore, a vital material to make steel, has soared in recent years due to growing demand, particularly in fast-growing China and India.

Nissan, Japan's number three automaker by sales, faces "severe headwinds" from higher material and energy costs, the weakness of the US and Japanese economies and a stronger yen, which is bad for overseas earnings, Ghosn said.

For the current fiscal year to next March, Nissan has previously predicted a 29.5 drop in net profit and a 30.5 percent decline in operating profit due to sluggish sales in maturing markets, a stronger yen and high material costs.

"I don't think that there is any car manufacturer, except some very specific cases, which thinks that 2008 is going to be better than 2007," Ghosn said.

In the US, if the market remains as weak as it has been in May and June then "the picture's going to be very bleak," he said.

"Frankly, nobody has a clue about what is the trend for oil (prices) for the next six months. We have to be prepared for the worst."

With Japan's population greying and shrinking, and a credit crunch undermining US sales, Japanese automakers are relying increasingly on emerging economies such as Brazil, Russia, India and China to expand their sales.

"The hottest market for us today is Russia," followed by certain markets in the Middle East, said Ghosn.

"We intend to take full advantage of growth in emerging markets," he said.

Ghosn said Nissan aims to become the industry leader in electric vehicles, which he said would see a boom in popularity due to growing concerns about high oil prices and global warming.

"Very quickly the market is going to shift to zero emissions. What you've seen for the hybrid is nothing compared to the shift to zero emissions. Our priority is to bring an electric car as fast as possible to the market."

Electric cars have so far failed to break into the mainstream because of limited battery life that makes them impractical for most purposes.

Nissan and its partner NEC Corp. said last month they would invest 115 million dollars to mass produce next-generation lithium-ion batteries for electric, hybrid and fuel-cell vehicles.

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