Nissan Says Datsun Cars May Generate 7% Operating Margins

Nissan Motor Co. said its low-end Datsun business in markets including India and Indonesia will generate operating margins of as high as 7 percent as it shares the parent’s development facilities and distribution network.

Datsun’s operating profit will probably average between 4 percent and 7 percent of revenue through the life cycle of the brand, Vincent Cobee, head of Datsun, said in an interview this week at Nissan’s headquarters in Yokohama, Japan.

The low-end brand may help determine the direction of Nissan’s overall earnings, with the carmaker counting on Datsun to account for one third to half of the group’s total deliveries in emerging markets where it will be introduced. Revived after more than three decades, Datsun will focus on lower priced cars, while Nissan’s namesake brand goes after mainstream motorists and Infiniti caters to the high-end market.

“The future growth in auto market will come mainly from emerging countries,” said Koji Endo, an auto analyst at Advanced Research Japan in Tokyo. “Datsun is a new attempt, a touchstone for not only Nissan but also the auto industry of how to make money from low-cost cars in these markets.”

Low-cost cars in emerging markets would typically generate operating margins of 2 percent to 3 percent at most, he said.

“I’m still wondering if it really will make any profit,” he said.

Operating Margin

Nissan, Japan’s second-largest carmaker, rose 1.1 percent to 942 yen at the close in Tokyo, compared with a 0.2 percent gain in the benchmark Nikkei 225 Stock Average.

Nissan Chief Executive Officer Carlos Ghosn has set a target to raise the company’s overall operating margin to 8 percent by March 2017. The margin shrank to 5.4 percent in the year ended March 2013 from 5.8 percent in the previous 12 months.

Total deliveries in India, Indonesia and Russia will probably reach 400,000 units in three years, Cobee said. He declined to give a projection for sales in South Africa, the fourth market Datsun is poised to be introduced.

Nissan has unveiled two models, a hatchback named Go in India and a three-row wagon called Go+ in Indonesia last year. The automaker will offer seven Datsun models in three years in four markets, Cobee said. Datsun cars will first go on sale in India from March, where it will be priced less than $6,500.

The cars will offer basic features to keep the price low, he said. A mobile docking station has been provided instead of a music player and navigator as Nissan expects use of smartphones for these functions.

Based on marginal profit, an internal profit measure that strips out fixed costs and some variable expenses, Cobee said the cars will make money from day one.

“The red line to never cross is marginal profitability, which means when you sell one car, you sell it for more than it costs to make, forgetting about the fixed cost,” said Cobee. “Selling below marginal profitability is a sin.”

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