Nissan CEO Says Soaring Steel Costs will Drive up Car Prices

Carlos Ghosn sees a 2-3% increase in 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 June 26. 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%?" Nissan has already announced price rises in the U.S. 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."

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.

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, Ghosn said.

Nissan, Japan's number three automaker by sales, faces "severe headwinds" from higher material and energy costs, the weakness of the U.S. 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% in net profit and a 30.5% decline in operating profit due to sluggish sales in maturing markets, a stronger yen and high material costs.

With Japan's population greying and shrinking, and a credit crunch undermining U.S. 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.

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

Copyright Agence France-Presse, 2008

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