Promises by Theresa May were not enough to stop carmaker doing a U-turn over new model

When Nissan announced its intention to build the new X-Trail in Sunderland in October 2016, it was hailed by the government as a vote of confidence in Britain, so soon after the referendum result that had shocked Japanese carmakers. Theresa May was personally involved in lobbying the company, giving assurances to Nissan’s ousted chief executive, Carlos Ghosn, shortly before the decision.

The government’s promises that Nissan would not be harmed by Brexit included pledges to ensure supply chains were not affected and commitments to research and development and training. However, that work appears to have been undone, with the Sunderland factory caught between an increasingly fraught political situation on one side and falling demand for its products on the other.

Will Nissan stay once Britain leaves? How one factory explains the Brexit business dilemma Read more

The market for diesel vehicles has slumped in Europe since the 2016 referendum, in part thanks to the Volkswagen emissions-cheating scandal, which led to much closer political scrutiny of the fuel’s environmental impacts. Buyers have been understandably wary of committing to diesel with the possibility of tougher rules or extra costs hanging over their cars. Nissan had planned to make the diesel model of the X-Trail in Sunderland.

Demand for the diesel version of the Qashqai, already produced at the Sunderland plant, has dropped quickly, with the fuel type accounting now for 20% of the sales mix, down from 40% only two years ago. Overall Nissan production fell by 10.7% in 2018 to 442,000, but no carmaker has been immune: total UK production fell by 9.1% to a five-year low in 2018.

Brexit has come at a particularly inopportune time for Britain’s car industry; however, falling demand for diesels was likely to be the primary factor in Nissan’s decision, according to David Bailey, a professor of industry and car industry expert at Aston University in Birmingham, but “Brexit makes producing in the UK more difficult”, he said.

Nissan first came to the UK in 1986, followed by Toyota in Derby and Honda in Swindon, with Conservative prime minister Margaret Thatcher selling the UK’s attraction as a business-friendly gateway to the hundreds of millions of consumers across Europe. With less than two months until the UK plans to leave the EU, carmakers have no concrete idea of whether the lean, just-in-time supply chains they have built since then will function after 29 March.

“The Japanese carmakers came to the UK to access the single market,” said Bailey. “This is a big shock for the Japanese producers.”

Bailey also pointed to the new free trade agreement between Japan and the EU as a likely factor behind Nissan’s choice to consolidate production in its existing facility in Kyushu, Japan. The company will be encouraged that it can export to the EU more easily from Japan than before, which lessens the need for a European production base for the new X-Trail.

Nissan has insisted that its decision will have no immediate impact on the 6,700-strong Sunderland workforce, but trade unions are understandably concerned for the longer-term future of the British carmaking industry, which made more than 1.5m cars last year under major brands such as Mini, Bentley and Vauxhall. Figures published last week by the Society of Motor Manufacturers and Traders (SMMT) showed that investment has slumped, with publicly announced plans falling to the lowest level since the financial crisis.

Carmakers have become increasingly strident in their warnings that deviation from current trading arrangements will harm the industry – which exports eight out of 10 vehicles it makes. Mike Hawes, the SMMT’s chief executive, warned that a no-deal Brexit would cause “permanent devastation”, while Ford’s European president, Steven Armstrong, said a chaotic departure could lead to the closure of its British operations.

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Lost investment could diminish the British industry as carmakers globally gear up for an even bigger structural challenge: the transition to electric and autonomous vehicles. Nissan’s alliance with France’s Renault and Japan’s Mitsubishi – sharing research and development costs – was copied last month by Volkswagen and Ford, as traditional carmakers try to defend themselves against technology companies such as Google and Apple, or other challengers like Dyson and Tesla.

Only Indian-owned Jaguar Land Rover remains of the major British-headquartered volume producers, meaning the UK is vulnerable to price competition on assembling vehicles from other countries, particularly in eastern Europe, according to Karel Williams, a professor at Manchester Business School.

“There were major issues about the attractiveness of the UK as an assembly site within the EU,” said Williams. “Brexit serves only to highlight this and the weakness of what’s left.”