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Analysis

Theresa May counts Nissan chicks before they hatch

by Hugo Dixon | 28.02.2017

When Nissan said last October that it would build new models at its Sunderland plant, Brexiters were cock-a-hoop. Now the Japanese car maker says it may change its mind if anything changes materially – in particular if its access to the EU market is compromised.

After a series of discussions with the government, Nissan announced that the next Qashqai car as well as a new X-Trail model would be built in Britain. It said this followed the “government’s commitment to ensure that the Sunderland plant remains competitive”.

The prime minister described the announcement as “fantastic news“.

It was never clear what exactly the government had promised the Japanese car maker. It couldn’t, after all, guarantee tariff-free access to the EU market post-Brexit given that this needs to be negotiated with the other 27 countries. Without a special deal, the bloc will impose 10% tariffs on cars after we leave. Meanwhile, any offer of compensation to Nissan in the event that it couldn’t secure a tariff-free deal would contravene EU state aid rules.

It was also hard to see how the government could have guaranteed the car maker that its supply chain – which involves shipping 5 million parts to its plant every day – wouldn’t be disrupted if Britain left the EU’s customs union. One idea doing the rounds at the time was that we might seek special permission for the automotive sector to stay in the customs union, but such selective treatment would breach World Trade Organisation rules.

More recently, May has made clear in her Brexit White Paper that we are leaving the customs union, but will seek to ensure that trade with the EU is “as frictionless as possible”. Unfortunately, trying to make something as frictionless as possible isn’t the same as guaranteeing that it will be totally frictionless.

Unsurprisingly, Nissan is now telegraphing the fact that its commitment to the UK isn’t rock solid. Colin Lawther, a senior vice president, told MPs at the international trade committee today: “We will continually review the decisions that we take based on anything that materially changes.” [View from 10:43]

While saying that Nissan was happy at the moment, he said the “big ticket item” that could change its mind was the nature of the trade agreement that Britain made with the EU – adding for good measure that “it’s our duty to our shareholders to review the business situation as circumstances change.” Lawther also said that any disruption to its supply chain would be a “complete disaster”. [View from 11:47]

None of this means that the Japanese car maker will scale down its Sunderland investment. But it does mean its future isn’t in the bag. It also means that the more the prime minister charges down the path of a hard, destructive Brexit, the bigger the risk both to Nissan’s investment and to the economy in general.

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Edited by Luke Lythgoe

7 Responses to “Theresa May counts Nissan chicks before they hatch”

  • Sir,
    Utterly predictable! In fact, on 27th October 2016, on my website, I wrote the following.
    What if the only deal was: one vague, meaningless press release from Theresa for another vague, meaningless press release from Nissan? Consider the business issues.
    The Sunderland plant is a massive cumulative investment of £3.6 Billion by Nissan since 1985. Companies clearly do not want to walk away from such sunk costs and need to make the best of a bad situation. With all the Brexit uncertainty, at a minimum Ghosn had to maintain morale of employees and suppliers for the duration of Brexit negotiations and until the new terms are clear. For now, all the old trade agreements still rule and the company needs to maximize profits.
    Actually, Nissan UK produced 7% or 34,000 fewer cars in 2015 than it did in 2012. At 477,000 cars made in 2015, that is almost four weeks of production. Clearly, there is a capacity-usage and fixed cost coverage requirement to build more cars. That has to be a new model as the old models are obviously declining in sales.
    Ghosn is only ‘securing’ jobs because with old models tailing off, the new models simply refill available capacity. No new jobs are created. Similarly, ‘increase investment’ can mean a lot of things. New models need re-tooling. That is an ‘investment’, but in the scheme of things minimal and can be done very quickly. Definitely, it will not mean the building of a new production line.
    Nissan did not give a time-line for production start- up, although the press speculates on 2018. That leaves a lot of time for Ghosn to change his mind. If the actual terms of Brexit turn out to be bad for Nissan, the threat of reducing commitment to Sunderland is still there. Let’s not forget that in January 2009, Nissan UK made 24% or 1,200 employees redundant. It is painfully obvious that if there was ‘no cheque-book’ now, adverse tariffs will require a ‘cheque-book in the future’.
    Ghosn was called “the hardest-working man in the brutally competitive global car business”. He is also ruthlessly competitive. We should be clear: with one simple press release he has made Theresa feel a bit better, made his employees and supplier feel a bit better, but has given up none, zero, of his flexibility to change his mind and still reduce commitment to the UK if it were necessary for his business!
    Arend Dikkers

    • No surprise there really.
      Nissan has another R&D site in Spain, but manufaturing is the issue.
      Nissan’s European production could be moved to Spain or alternatively to France quite easilly. The Renault Nissan Alliance means that the Spare capacity in Renault could be used to manufacure Nissan product. In France this would be viewed as foreign investment, which is tax deductable, as Nissan in not majority owned by Renault.
      I could see a reciprocal CKD agreement being organised by Nissan, BMW,GM and Toyota quite easily if the tariff wall goes up, Honda don’t have the luxury. Ford’s UK presence is minimal, but I could see a CKD pop up for them too, with the other manufacturing being relocated. MG, for what it’s worth is really a CKD operation anyway.

  • If Nissan doesnt support Brexit we should all boycott them -no room for people who aren’t with us after we take back control.

    • Alfie Jones – OK that is a plan of sorts. Are you going to give up driving cars or will you be buying from a different manufacture?

      If the latter, which one? The choices are either made abroad or made in the UK but suffering the same or similar challenges to their business as Nissan.

      May be you could buy a Jaguar or Land Rover?

      I waiting with bated breath for your helpful advice.

  • No serious new investment has been committed at Sunderland since the Referendum. Some “add ons” with existing suppliers and the same drive trains were committed.
    But huge changes are afoot in auto technologies. The Renault/Nissan/ Mitsubishi (where Carlos Ghosn is now CEO) Group is competing worldwide : does anyone seriously believe the Sunderland plant can compete outside the Customs Union for a new generation of vehicles when half the parts and most of the production (roughly) come from/go to the Single Market ?
    By the way, the largest shareholder in Nissan is the French taxpayer. Will that help Sunderland ?