Nissan snubs Sunderland. Is Brexit to blame?

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SUVS OFTEN divide opinion. Young drivers appreciate the butch styling and elevated driving position; more staid road-users find them unnecessarily brash and bulky. Nissan’s X-Trail has caused a different split in Britain. The Japanese carmaker’s announcement on February 3rd that it would make the latest version of the model in its home country, reversing a previous decision to use its factory in Sunderland, has elicited contrary explanations from the two sides of the Brexit argument.

Ardent Remainers lay the blame squarely on Britain’s imminent departure from the European Union. Brexiteers blame the pressures facing a global industry. Nissan says both are right, citing the business case for making X-Trails in Japan but also lamenting the “continued uncertainty” around Brexit.

Teasing apart Nissan’s motivations is tricky. In 2016 the firm promised the British government that it would continue to make the X-Trail and the Qashqai, a smaller SUV, in Sunderland after Britain left the EU. In return Nissan’s then boss, Carlos Ghosn (now languishing in a Japanese prison awaiting trial over alleged financial misconduct), received a confidential letter of “assurances” from ministers. Now published, the missive reveals a pledge to hand over up to £80m ($104m) for help with research and development. Since 2016, however, much has changed: in the car industry, inside Nissan, and in Britain’s approach to Brexit.

All carmakers have suffered as governments and consumers have turned against diesel power. Plunging sales of diesel vehicles, such as the version of the X-Trail that was set for production in Sunderland, prompted Nissan to promise last year to withdraw from the diesel market in Europe. Increasing production at a factory in Japan that already makes petrol-powered X-Trails will require far less investment than making those cars with imported engines in Sunderland.

At the same time, Nissan has become harder-nosed. It has recently struggled in Europe, where its new car registrations fell by 13% last year. One result of Mr Ghosn’s imprisonment, which he blames on a corporate power-struggle, is that his strategy of chasing sales and hoping that economies of scale would bring profitability has been replaced. Nissan’s new boss, Hiroto Saikawa, cares more about making profitable cars than lots of cars. Investing more in a diesel X-Trail in Sunderland did not fit with this strategy.

So how much can be ascribed to Brexit? Since 2016 the government has announced its intention to leave the EU’s single market and customs union, which would make life much harder for carmakers, whose supply chains criss-cross the continent. The possibility of a disruptive no-deal exit on March 29th remains open. A trade deal between the EU and Japan that took effect on February 1st means that X-Trails exported from Japan to Europe will eventually attract no tariff, whereas if exported from Britain under a no-deal scenario they would face duty of 10% under the rules of the World Trade Organisation.

The greatest worry for Britain is that Nissan’s move will reinforce an industry mindset to take any opportunity to shift production elsewhere. Investment in the British car industry fell by half in 2017, to £589m. The fear is that as more decisions about where to make new models arise, carmakers will look far less favourably on a Britain that lies outside the security of a large trade bloc, whatever the terms of its exit.

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