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Profitable Nissan aiming to reduce waste

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Nissan Motor Co., poised for a sixth year of record profit on March 31, said it's aiming to make better use of its global factories to reduce waste and cut production costs by 12 percent by March 2008.

The maker of Altima sedans will assemble different models on the same production line in Taiwan, Thailand, South Africa and Indonesia, lifting its capacity utilization rate to 80 percent from 75 percent, said Executive Vice President Tadao Takahashi. A 10 percent rise in capacity utilization lowers costs by 5 percent, he said in an interview Friday.

Nissan Chief Executive Officer Carlos Ghosn has slashed 1 trillion yen ($8.5 billion) in the Tokyo-based carmaker's costs since taking the helm of Japan's second-largest carmaker in June 2000. As the growth of vehicle demand slows in North America, Europe and Japan, Nissan is honing its efficiency to increase profit.

"It's extremely important to continue cutting costs to have a lean and efficient system to remain competitive," Takahashi said.

The carmaker plans to cut procurement costs by 15 percent over three years, by using locally made components for vehicles assembled in China and other so-called emerging markets.

"Every company that's successful has to come up with ideas to reduce costs," said Koji Endo, Credit Suisse's Tokyo-based analyst who said Nissan shares will "outperform" the market. "Nissan will probably achieve the cost cut target."

Nissan plans to sell 28 new or redesigned vehicle models in the three fiscal years ending March 2008. It can retool its assembly to make a new model in one and half months, compared with more than three months in 1999.

The carmaker already has 18 of the flexible production lines in Japan, the U.S., Mexico, Europe and China.

Nissan, 44.3 percent owned by Renault SA, expects to sell 4.2 million vehicles globally in the year ending March 2009. That's up 16 percent from an estimate of 3.62 million units, which the company plans to sell this business year.

The automaker, boosting capital investment by 13 percent to a record 540 billion yen this fiscal year, also expects return on investment capital to exceed 20 percent, Takahashi said.

Nissan shares rose 1.2 percent to 1,397 yen in Tokyo at 9:34 a.m.

"It's important to keep the factory running steadily and to do so, we need to be able to offer models suited to customers' preference and local needs," said Takahashi. The company increases work hours, the number of shifts and runs its factories on weekends to boost the utilization rate, he said.

Factories in Japan usually operate only on weekdays and have two shifts that have eight working hours each plus an extra 30 minutes of work, according to Credit Suisse's Endo. Nissan's factories in Japan have a utilization rate of about 85 percent, which is among the highest, Takahashi said.

The automaker's so-called Nissan Internal Benchmarking compares productivity, quality and efficiency at 17 vehicle factories around the world using more than 110 criteria.

"By making factories compete with one another, we have been able to see improvement," said Takahashi.

Having suppliers on site also helps Nissan cut costs, he said. Calsonic Kansei Corp., 41.2 percent owned by Nissan, has its own production facility in three of Nissan's factories in Japan to make air conditioning systems and radiators, while Visteon Corp. makes auto interiors at Nissan's Canton, Mississippi plant.

"Nissan is the only major Japanese automaker that has suppliers producing modules and parts in a Nissan factory, which helps cut logistics costs and inventory costs," Endo said.

Nissan may build new factories or expand after March 2008 when existing capacity is stretched to the maximum, Takahashi said. The automaker is working with Renault to start selling and making vehicles in emerging markets such as Russia and India by cooperating, he said without elaborating.

Renault, France's second-largest carmaker, will sell Indian-made Logan sedans in a venture with Mahindra & Mahindra Ltd. starting in 2007.

India, Asia's fourth-largest economy, is among the so- called emerging markets that Ghosn said Nissan "still isn't tackling," including Russia, Eastern Europe and South America.

Contributing: Maki Shiraki

E-mail: kinoue@bloomberg.net