The Renault-Nissan Alliance will increase production in Korea to cut its reliance on Japan as a manufacturing base as the yen strengthens, chief executive officer Carlos Ghosn said.

During a visit to Abu Dhabi he told journalists: “With the strengthening of the yen and the competitiveness of the yuan, those who have capacity in Korea today have a plus. If something erratic happened in the exchange rate, you don’t find yourself with your eggs in the same basket.”

The yen has advanced 14% this year, the biggest gain among the currencies of the developed world. It rose as high as 83.60 per US$ on August 24, the strongest since June 1995, from a 2009 low of JPY101.44.

The alliance’s Korean unit, Renault Samsung Motors, has a plant in Busan. The alliance said earlier this month it was exploring ways to expand its business in Southeast Asia after dropping out of the bidding for South Korean manufacturer Ssangyong.

In addition to assembling the Samsung SM3 and SM5, the Busan plant also exports around 50,000 Nissan models annually to the Middle East. The Latitude version of its SM5 sedan for export to the Middle East and Europe will also be produced there.

Ghosn added that Nissan plans to sell 200,000 vehicles in the Middle East and North Africa in the fiscal year to the end of March 2011. Sales in the region, plus India, grew 27% in August from a year earlier, Gilles Normand, vice president for the region, said.

Ghosn also said that electric cars can be successful in Gulf countries and other oil-rich states, but only with initial government help. The need for initial assistance is not, however, limited to oil-rich countries, he said.

"The electric car will be successful in the United States and in Japan and in Europe" because governments "have decided to support the consumer in order to jump start the sales."

The United States, Japan and various European countries offer incentives to make low- and zero-emissions vehicles cheaper for buyers. Such support is key, Ghosn said. Nissan is due to launch its first electric car, the Leaf, later this year. 

Ghosn said that Nissan and Renault have no plans to expand production capacity in the Middle East in the absence of a free-trade agreement between Arab countries. Nissan has a factory in Egypt, and a Renault-managed factory is under construction in Morocco.

Ghosn added: "As long as you don't have a free trade or at least an effective free trade in the mideast, it's going to be very difficult to make an investment in capacity if you can't sell in a seamless way in the Arab countries."

Free trade in the Arab world would be "an incentive for carmakers to establish capacity in the mideast", he added.

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