Nissan to Build Brazil Plant in Expansion

Investments in Brazil are growing as big auto industries are establishing new plants, since the import tax over foreign vehicles has been imposed.

Rio de Janeiro — Nissan Motor Co. is counting on substantial growth in Brazil to help drive a recently unveiled strategy to expand its share of the global auto market over the next six years.

The auto maker on Thursday is set to disclose a plan to spend $1.5 billion to build a plant in Resende, near here.

In Brazil, there are about 250 cars for every 1,000 inhabitants—less than half the figure in Europe and less than a third of that in the U.S. Given Brazil’s 190 million residents, there’s a “very long period of growth” ahead in the world’s fourth-largest auto market, said Carlos Ghosn, who serves as chief executive for both Nissan and its alliance partner, Renault SA.

“We need to position ourselves for this growth,” Mr. Ghosn said.

Nissan’s investment will be announced along with another in Brazil by Renault. The French auto maker is planning to spend $200 million to expand an existing plant in São José dos Pinhais in Paraná state.

Earlier this year, Nissan said it aims to increase its global market share to 8% by 2017, up from the current level of 5.6%. Such an increase implies the company would raise its annual production of cars to more than seven million. It is on track to produce more than four million vehicles this year.

The Japanese auto maker also hopes to increase its return on sales to 8% from 6.1%.

In July, Nissan’s joint venture in China announced it planned to spend $7.8 billion in a bid to increase manufacturing capacity and nearly double sales to 2.3 million vehicles over the next five years. The company is counting on expansion in big emerging markets such as Brazil, Russia, India and China—known as the BRIC countries—to drive sales and profit growth. At the same time, it also is considering trimming exports from Japan, where the strong yen has eroded its margins.

The Brazil investments represent the final piece in Nissan and Renault’s bid to capitalize on growth in emerging markets. “It’s the last brick in the BRICs wall,” Mr. Ghosn said. Brazil was the “only BRIC market where we had not yet announced a major offensive.”

The affable Mr. Ghosn, who was born in Brazil but moved to Lebanon as a youngster, said that as a Brazilian he was “impatient” to extend Renault-Nissan’s reach on his home turf. “I’ve always watched this market very carefully,” the executive said. Instead of the yearly trips to visit friends and family, he now returns to his hometown of Rio de Janeiro with designs on grabbing a bigger slice of the auto market in Latin America’s largest economy.

The executive has been in Brazil since last week, and met with Brazilian President Dilma Rousseff on Saturday to discuss the companies’ plans. The plans will help Renault-Nissan double its current market share in Brazil to 13% by 2016, which would push the joint venture into the top tier of the Brazilian auto makers in terms of sales volume.

Renault-Nissan is currently Brazil’s fifth-largest auto maker by sales, with 6.5% of the market. Volkswagen, Fiat SpA and General Motors Co. are the top three sellers, each with about 20% of the Brazilian market, while Ford Motor Co. is a distant fourth at 10%.

Brazil’s auto sales are likely to expand 5% this year, slowing from last year’s 12% growth, as higher taxes and rising interest rates cooled consumer spending as the government battles 7% inflation.

Last month, the Renaul-Nissan alliance unveiled the Nissan March compact car, a cornerstone of the BRIC strategy, and on Tuesday launched the all-new Renault Duster sport-utility vehicle in Brazil. The Duster, an affordable SUV the company says is popular with younger buyers, will be built at Renault’s Paraná plant. Renault plans to launch 13 cars in Brazil over the next five years.

In November, Nissan will then launch the Versa, a larger compact car, which will initially be imported from a plant in Mexico. People with knowledge of the company’s plans said the new Nissan plant in Brazil will produce both the March and Versa.

Renault-Nissan’s investment plans for Brazil come amid some controversy in the industry after the government announced a tax increase on cars produced abroad by companies that don’t have an average of 65% of the content in their vehicles produced locally.

The brouhaha is a nonissue for Renault-Nissan, which on average meets the 65% local-content threshold, Mr. Ghosn said. The government measures serve to “encourage” auto makers to produce locally, which any company serious about Brazil is likely already considering, he added.

“I don’t think, reasonably, any car manufacturer can think about having a long-term strategy in Brazil without producing locally,” Mr. Ghosn said. “Imports can only be a temporary solution.”

Write to Jeff Fick at jeff.fick@dowjones.com
Source: The wall street Journal