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Nissan, Renault, M&M

to build cars in Chennai – sources

<font face="arial, geneva, helvetica" size="2">Nissan Motor Co. will set up a car factory in India with Renault SA and Mahindra &amp; Mahindra in 2009, sources close to the matter said on Friday, giving the Japanese automaker its first manufacturing foothold in the booming Indian market.</font>

<font face="arial, geneva, helvetica" size="2">Nissan, Japan's third-biggest automaker, had been studying the possibility of joining an existing local partnership between France's Renault and Mahindra since November and had set a March 9 deadline for a decision.</font>

<font face="arial, geneva, helvetica" size="2">The three automakers will jointly own the factory in Chennai, with initial annual output capacity of 400,000 units in 2009, one of the sources said. Mahindra, India's biggest utility vehicle and tractor maker, will own half of the venture, and Nissan and Renault will each hold 25 percent.</font>

<font face="arial, geneva, helvetica" size="2">The factory is likely to build derivatives of Renault's no-frills Logan car. A decision on other products, including those under the Nissan badge, will be made later, the sources said.</font>

<font face="arial, geneva, helvetica" size="2">The three companies and the state of Tamil Nadu will make an announcement on the project on Monday. Officials at Nissan and Mahindra declined to comment, while Renault could not immediately be reached.</font>

<font face="arial, geneva, helvetica" size="2">Nissan is a latecomer to India, where passenger car sales are projected to double to 2 million units by 2010. The Tokyo-based automaker sells only the imported X-Trail sport utility vehicle in Asia's fourth-biggest economy, with sales there totalling just 190 units last year.</font>

<font face="arial, geneva, helvetica" size="2">"It's a definite boost for Nissan, which has been quite behind," said Viraaj Teckchandani, an analyst at ASK-RJ Securities.</font>

<font face="arial, geneva, helvetica" size="2">"It's also positive for Mahindra, which could have access to a wider distribution network overseas for their Scorpio (sport utility) through Renault and Nissan."</font>

<font face="arial, geneva, helvetica" size="2">The new project in Chennai is likely to include a large sourcing operation for the Renault-Nissan alliance, the sources said. Chennai, a port city that is also home to car factories belonging to Hyundai Motor Co., Ford Motor Co. and BMW AG, has a widely established vendor base.</font>

<font face="arial, geneva, helvetica" size="2">Carlos Ghosn, chief executive of both Nissan and Renault, has repeatedly expressed interest in India not just as a manufacturing site for vehicles, but for procuring cheap auto components for use globally by the Franco-Japanese alliance.</font>

<font face="arial, geneva, helvetica" size="2">Renault owns 44 percent of Nissan, which in turn holds 15 percent of the French carmaker.</font>

<font face="arial, geneva, helvetica" size="2">PRESSURE ON COMPETITORS</font>

<font face="arial, geneva, helvetica" size="2">The three-way link-up is poised to turn up the heat on other carmakers operating at the fringe in India, where competition is growing tougher as more players enter the market.</font>

<font face="arial, geneva, helvetica" size="2">Nissan's Japanese rivals Honda Motor Co. and Toyota Motor Corp. still occupy just a niche and are looking to gear up sales with smaller, lower-cost vehicles, but have conceded that lowering production costs far enough was difficult against volume leaders such as Maruti Udyog Ltd.</font>

<font face="arial, geneva, helvetica" size="2">Maruti, held 54 percent by Japan's Suzuki Motor Corp., sells about half of India's new cars, followed by South Korea's Hyundai and Tata Motors Ltd.</font>

<font face="arial, geneva, helvetica" size="2">Tata has a deal with Italy's Fiat SpA to build more than 100,000 cars and 200,000 engines and transmissions together in India from next year.</font>

<font face="arial, geneva, helvetica" size="2">"Like the Tata-Fiat deal, there are obviously advantages for all sides in a deal like this," Ambrish Mishra, an analyst at Man Financial said of the planned Nissan-Renault-Mahindra agreement.</font>

<font face="arial, geneva, helvetica" size="2">"There are not many large firms left for such alliances, but we may still see some activity in the commercial vehicles space," he added.</font>

<font face="arial, geneva, helvetica" size="2">Nissan has a separate agreement under which Maruti is to build 50,000 compact cars under Nissan's badge, mostly for export to Europe from 2008.</font>

<font face="arial, geneva, helvetica" size="2">Renault and Mahindra have another joint venture that is scheduled to build the Logan at a factory in Nashik, near Mumbai, starting this year.</font>

<font face="arial, geneva, helvetica" size="2">Mahindra, which owns 51 percent of that venture, has another pact with Navistar International of the United States to make trucks and buses in India from this year.</font>

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