Nissan Motor Company is considering opening a new Infiniti manufacturing plant to produce it’s vehicles in North America. Nissan’s Infiniti production, with the exception of one model, is done entirely in Japan. However, it seems the company has a lot to gain from expanding it’s manufacturing facilities into North America.
One of the key reasons for this expansion is to avoid losing money from the cost of changing currency. According to the article, “A strong yen hurts the price competitiveness of Japanese exports and reduces the value of profits earned abroad when they are returned home.” The additional revenues generated could be used to provide a lower price on Infiniti vehicles or fund the investment of the new factory.
Another reason a new plant would be beneficial is because it would allow the sharing of resources with existing Nissan operations in North America. This would shorten the supply chain for many essential components including core vehicle parts. A shorter supply chain can increase the speed of production as well as decrease costs of shipping parts.
Lastly, producing Infiniti vehicles close to where they will be sold will decrease transportation costs. The article didn’t state any information regarding the amount of these transportation costs. However, they are likely quite expensive due to the large distance between the United States and China. Although shipping by water is relatively inexpensive, it is also the slowest form of transportation. A plant in North America would allow many alternatives such as railroads and trucks.
Because of these reasons, Infiniti Motor Co. President Johan de Nysschen is currently debating the possibility of opening a plant in the United States, Canada, or Mexico. The new plant is expected to produce over 100,000 Infiniti vehicles per year. According to the article, the cost of a new plant will be approximately 2 billion dollars. It is also possible to add Infiniti capacity to an existing Nissan plant for approximately half the price. Alternatively, an investment into Chinese Nissan plant to add Infiniti capacity will only cost 323 million.
Although the Chinese plant would be a much cheaper investment, it probably isn’t the best option. Last year, Infiniti only sold about 11,000 to 12,000 cars in China, while 119,877 cars were sold in the United States. Although sales in China are expected to rise to 15,000 to 16,000 vehicles this year, this amount is nothing compared to the sales in the U.S. Since nearly 70% of last years sales were in the U.S., it seems North America would be an ideal location for the new factory.
What do you think is the best investment for Nissan to pursue? Should they open a new factory to increase productivity? If not, what would you suggest they invest their money in?