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Renault-Nissan alliance invests $160 million in South Korea

Automakers look to take advantage of South Korea-US free trade agreement.


July 20, 2012
by The Canadian Press

SEOUL, South Korea: The French-Japanese auto alliance of Renault and Nissan is investing $160 million in its South Korean Renault Samsung Motors subsidiary to produce Nissan-branded vehicles mostly destined for the US, taking advantage of the South Korea-US free trade agreement and a more favourable exchange rate.

The investment will help utilize unused capacity at Renault Samsung’s Busan plant, which has cut production to 180,000 vehicles a year, well below its full capacity of 300,000 vehicles, as sales slumped at home and abroad.

The plant will use the investment to annually produce 80,000 next-generation Nissan Rogue crossover sport-utility vehicles starting in 2014. They will be shipped to North America and a few Asian countries, said Nissan Motor Co. Chairman Carlos Ghosn.

With the production of Nissan-branded cars, South Korea and the struggling Renault Samsung Motors are moving closer to becoming an export base for the Renault-Nissan Alliance, which has been expanding outside Europe and especially in Asia.

“Korea is a very competitive base,” Ghosn said at a news conference in Seoul. “The Korean government has done a great job in supporting this industry with very competitive foreign exchange rates, which has allowed the industry … to really weather the storm very well and continue to expand.”

Japanese automakers have been hammered by the strong yen which erodes profit from cars produced in Japan and then shipped overseas. To counter the unfavourable exchange rate, Japanese car makers have increasingly moved production abroad, making countries such as Thailand important auto production bases.

But Ghosn said Renault has no plan to increase the capacity of the Busan plant. “The 300,000 capacity that we have in Busan should be little by little filled.”

The move to beef up production in South Korea is unique among major Japanese automakers. Toyota Motor Corp. and Honda Motor Co. do not have plants in South Korea.

The move is also noteworthy for taking advantage of a trade deal that Japan lacks. South Korea is ahead of Japan in such deals, and already has a free trade agreement with the US, and is negotiating deals with Canada and Mexico, where the Rogue is also headed.

Renault was the first European carmaker to set up operations in South Korea. In 1994, Nissan formed Samsung Motors Inc. with Samsung Group. In 2000, Renault SA of France purchased 70.1 per cent of Samsung Motors, which had entered bankruptcy in the wake of the Asian financial crisis, and renamed it Renault Samsung. Renault now owns 80.1% of the manufacturer.

Analysts said the investment is Renault’s quick fix for its ailing South Korean unit, which has been squeezed by nimble rivals Hyundai Motor and Kia Motors.

“It appears to be an emergency patch to push the factory operation back to the normal level, but it doesn’t appear to be a long-term strategy,” said Bok Deuk-kyu, a senior analyst at Samsung Economic Research Institute in Seoul.

The French carmaker had risen to No. 2 by market share in South Korea in 2003 thanks to the popularity of its SM5 model. But in recent years, it has lagged behind Hyundai, Kia and GM Korea, and is closely trailed by Ssangyong Motor.

The investment comes at a difficult time for Renault Samsung. In 2011, it lost $256 million and a plunge in sales had even set off speculation that Renault may sell the South Korean unit. Ghosn said the announcement underlined its commitment to Renault Samsung.

Its South Korean sales in the first half of this year plunged 33 per cent from a year earlier to 83,062 vehicles. Last month, South Korea’s smallest auto player Ssangyoong Motor Co. sold more cars than Renault Samsung.

All automakers are eager to boost their business in rapidly growing Asia.

Renault expects to sell more than half of its vehicles outside of Western Europe next year, up from 37 per cent in 2010. Renault is aiming for 10 per cent market share in South Korea, up from 4.4% in the first half of this year, and 7% last year.

The alliance between Renault and Nissan was born in 1999, when Nissan was near bankruptcy.

Ghosn, who was sent in by Renault to turn around Nissan, is revered as a management role-model in Japan. Under Ghosn, Nissan has returned to strong growth, despite setbacks last year from the earthquake and tsunami disasters in northeastern Japan. The Renault-Nissan alliance sold a record 8.03 million vehicles worldwide last year.

©The Canadian Press