Market Warned to Steel Itself

Soaring steel costs will force consumers worldwide to pay higher prices for automobiles in the coming years, Nissan Motor Co chief executive Carlos Ghosn has warned.

Surging raw material costs are eating into car makers’ profits, even as rocketing fuel prices weigh on their sales, particularly those of large trucks and sports utility vehicles in the US.

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 per cent?”

Nissan has already announced price rises in the US 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 car makers.

Car makers will have to raise their prices by about two or three per cent in 2008 if they want to offset the rising cost of raw materials, he said.

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.

Nissan, Japan’s number three automaker by sales, faced “severe headwinds” from higher material and energy costs, the weakness of the US and Japanese economies and a stronger yen, which was bad for overseas earnings, Ghosn said. For the current fiscal year to next March, Nissan has previously predicted a 29.5 per cent drop in net profit and a 30.5 per cent decline in operating profit due to sluggish sales in maturing markets, a stronger yen and high material costs.

In the US, if the market remained as weak as it had been in May and June then “the picture’s going to be very bleak,” he said. “Frankly, nobody has a clue about what is the trend for oil (prices) for the next six months. We have to be prepared for the worst.”

Nissan and its partner NEC Corp said last month that they would invest $US115 million to mass produce next-generation lithium-ion batteries for electric, hybrid and fuel- cell vehicles.

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