Breaking Business News | Breaking business news AM | Breaking Business News PM

Nissan staying in UK is great news after Brexit, but car industry’s future is still very unclear

26 Jan 2021

Sunderland 1 Brexit 0.Owen Humphreys/PA

When the UK voted for Brexit, there were no positives for the UK car industry. The prospect of a 10% tariff on car production that involves parts and sub-assemblies moving in and out of the UK was untenable.

Without a trade deal with the EU, Nissan warned that its Sunderland plant in north-east England would be “unsustainable”. It would have to withdraw from the UK in the same way as Honda, whose plant in Swindon is shutting down permanently in July.

Nissan employs 6,000 people directly in Sunderland, and thousands more through the local supply chain. Its warning was reinforced by the fact that the company’s annual Sunderland investment had dropped 71% since the 2016 vote. And besides Honda, other manufacturers such as Ford, which makes engines in the UK, had also threatened to pull out in the event of no deal.

Realistically, a trade deal was essential to secure UK car manufacturing – even if it meant the compromises that have drawn fish lorries to Whitehall, protesting that their industry has literally been sold down the river. The question is, where does UK automotive go from here?

Business not as usual

The UK is a mid-ranking car manufacturer, with Tata/Jaguar Land Rover the biggest producer and other substantial players including BMW/Mini, Toyota, Stellantis/Vauxhall and of course Nissan. In 2019, 1.3 million cars were produced, with eight out of ten exported and over half of those to the EU. Over the same period, Germany manufactured 5 million cars and France 1.4 million, while world leaders China and the US produced 26 million and 11 million respectively. These figures have fluctuated in 2020 due to the pandemic.

The new trading arrangements are worse for the UK industry than before. An estimated £15 billion will be incurred by the UK as a whole through added bureaucracy, while for car makers, 45% of the value of any car exported from the UK to EU or vice versa must have been derived there. This “country of origin” rule affects companies like Nissan and Toyota, whose UK assembly plants source key high-value components from Japan and other non-European countries.

Nonetheless, the industry now knows the rules of the game. Nissan’s general decision to back Sunderland is less significant than moving production there from Japan for its 62kWh battery packs for cars like the Leaf. This both removes shipping costs from Japan, and satisfies the EU country of origin rules.

Yet this may reflect Nissan’s individual situation more than any coming investment boom for the UK industry. Nissan is suffering from the fallout from the Carlos Ghosn era, when he controlled the Renault/Nissan/Mitsubishi Alliance. Since Ghosn was sacked by Nissan in late 2018 over financial misconduct charges (which he denies) and then fled justice in Japan to his native Lebanon, the alliance has looked fractured.

Whereas the partners would previously have collaborated, it appears that they are now doing a lot more independently – hence Nissan needing a battery facility of its own in Europe.

In 2020, Renault received French government money as part of an overall €8 billion (£7.1 billion) financial injection to the industry to enable lower emissions and electric vehicles. President Emmanuel Macron openly stated that he expects car manufacturing operations to be re-localised to France, arguing that no French car model should be manufactured abroad. This may have a bearing on reports in 2020 that the manufacturing of several Renault SUVs might be moved to Sunderland.

For its part, Mitsubishi announced in 2020 that it was pulling out of the UK, leaving 103 dealerships and its customers in limbo. This was not because of Brexit but because of internal corporate difficulties.

Combustible row

Nissan’s new enthusiasm for the UK is not shared by all car manufacturers. Stellantis, the newly merged Fiat Chrysler and Peugeot, which makes Vauxhalls in the UK, has been delaying an investment decision over its Ellesmere Port plant in north-west England. This is due to Brexit and the UK government’s requirement that no new petrol or diesel cars will be sold by 2030 and hybrids be phased out by 2035.

Stellantis, which also has a plant in Luton near London, is expected to reach an investment decision in the next couple of weeks. With France’s Peugeot part of the newly merged group, it raises questions about whether Vauxhall could even be drawn into Macron’s French re-localisation drive.

Stellantis’ position reflects wider industry reservations about the 2030/35 bans, since it is obvious that many other markets will not be able to move towards electrification. Japan is committed to a hydrogen-based society, while less developed economies have infrastructure problems with electricity supply that make a roll-out of electric cars impossible. With companies like Jaguar Land Rover making so many cars for export, the need to offer different cars to different markets will complicate business models.

In the UK, we wait to see whether the government in a post–COVID world can supply the infrastructure and also the workforce to make its 2030 target viable. It initially estimated £4 billion infrastructure costs, but critics insist it will be much more. The industry has a legacy expertise developed over 100 years in the internal combustion engine. The radical shift towards electric will impact everyone from manufacturers to showrooms.

In sum, the future of UK car-making looks much more solid than before the EU trade deal. Nissan’s proposed investment is probably the best news for some time. But the decision looks very specific to the company’s situation. Whether rivals will see things the same way is unclear.

One irony is that the industry’s attractiveness to further investment will depend on how aligned the government’s electrification objectives are with the EU. Since the EU is the UK’s main export market for cars, if it takes a different path with electric cars, investors are less likely to choose the UK in future.

Jim Saker is affiliated with the Institute of the Motor Industry.


Read the full article here.
This content was originally published by The Conversation. Original publishers retain all rights. It appears here for a limited time before automated archiving.By The Conversation

Covid-19 – Johns Hopkins University

Download brochure

Introduction brochure

What we do, case studies and profiles of some of our amazing team.

Download

Do NOT follow this link or you will be banned from the site!