Blogs/Vlogs

Nissan: when the incentives aren’t enough

20 February 2019

The market for diesel cars is plummeting, China’s economy is slowing down and the manufacturing industry is losing patience with the Brexit process. Nissan’s change of mind over the X-Trail production site could be a warning sign.

A matter of concern?

On 4 February Nissan became another in a series of major car manufacturers to announce a reduction in their commitment to the UK. As the owner of an X-Trail I hoped that I would not be singled out as a target of public disapproval. But I need not have been concerned; the British public have got used to taking this type of announcement in their stride. During a radio programme transmitted from Sunderland, the site of Nissan’s largest plant in Europe, and a town that voted for leaving the EU by one of the widest margins, little regret was expressed by those interviewed.

The seven-year switch

Just to put the announcement in perspective, Nissan currently employs 7,000 people, making it Sunderland’s largest employer by far. It is estimated that a further 33,000 people are employed in its supply chain. The decision to build the new X-Trail in Japan, in spite of an £80m incentive offered by the UK Government in the wake of the 2016 EU Referendum, means that 741 new jobs will not now be created. The current models of the Qashqai and the Juke, together with the new Leaf, will, however, continue to be made on Wearside. Some commentators have seen this as a sign that Nissan’s operations in the North-East have a sure future. This confidence fails to take into account the seven-year average investment cycle in the automotive industry; new models destined for the market in 2026 are just entering the design phase and decisions are already being made as to where they will be built.

This means that if we regard Nissan’s decision as a symptom of a greater malaise we need to be concerned that Vauxhall’s Ellesmere Port plant (part of the PSA Group) will be due for an upgrade in 2022, and JLR’s plant at Castle Bromwich is approaching the end of the 7 year cycle. There are other ominous signs. BMW has moved production of some of its engines from the UK to Europe, Honda ceased production of its CRV in Swindon last year, Ford has laid off 400 workers at its Bridgend engine plant, and JLR recently announced a reduction in its global workforce of 4,500, mostly affecting the UK. One bit of good news is Toyota’s £240m investment in its new Corolla production line, although that investment decision was taken long before the current turmoil. New investment in the UK automotive industry fell in 2018 by 46.5% compared to the previous year, according to the Society of Motor Manufacturers and Traders.

Uncertainty on a grand scale

The UK’s car industry makes a massive contribution to our prosperity. In 2017 its turnover was £82 billion. Exports of vehicles and parts amounted to £44 billion, or 12.8% of all UK exports of goods. It employed 856,000 people and contributed £20.2 billion to the economy. (SMMT data).

The fall in the popularity of diesel cars is a major factor in Nissan’s decision. The Company planned to manufacture a diesel version of its X-Trail in the UK but now sees less reason to do so. Nissan have mostly tried to avoid getting involved in the politics of Brexit. At the time of the Referendum they commented that remaining in the EU was in their interests but stated that it was not their policy to advise their employees in political matters. Their Chairman’s recent announcements have been equally tactful but after explaining that the environment for the car industry in Europe had changed dramatically he added, “but clearly the uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future."

The EU reached a free-trade agreement with Japan only a couple of weeks ago. Nissan can now export cars tariff-free from its plant in Japan to its market in Europe. With effect from 30 March the UK will not be a party to that agreement, and in fact a no-deal Brexit with WTO rules could mean that its vehicles made in the UK for export to the EU might attract a tariff of 10%. It probably took Nissan’s board no more than a moment to dismiss the £80m incentive as insignificant and irrelevant.

If you are involved in the automotive industry and would like any advice on this matter and others that may affect your business please contact me or another member of our automotive sector team.

Let's talk! Send an enquiry to your local UHY expert.