Why it makes sense for Nissan to build X-Trail in Japan | Business News

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It was inevitable that Nissan’s decision not to build the X-Trail sports utility vehicle at its plant in Sunderland would become a football for those on either side of the Brexit debate.

For Remainers, the decision is a direct consequence of the vote to leave the EU, as well as a harbinger of the harm that Brexit will do to the UK’s car-making industry longer term.


For Leavers, the decision is nothing to do with Brexit whatsoever but rather a reflection of the challenges facing the car-making industry everywhere, including Britain.

The truth is, as ever, somewhere in between.

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Yes, Brexit did come into play, as spelled out in the statement from Gianluca de Ficchy, Nissan Europe’s chairman: “While we have taken this decision for business reasons, the continued uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future.”







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But Brexit was probably only an aggravating factor.

The main cause of this decision is the ongoing backlash against diesel cars, exacerbated by clueless ministerial pronouncements, following the Volkswagen emissions scandal.

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Sales of diesel cars are not only in freefall in the UK, where demand fell by almost 30%, but also on mainland Europe.

The X-Trail is diesel powered and it has been suggested that Nissan was struggling to ensure the engines with which the new vehicle was to have been powered complied with the EU’s new emissions regulations.

It has also been suggested that, with diesel falling in demand, it would have been prohibitively expensive for Nissan to ship petrol engines from Japan to fuel the new line.



Labour MP for Sunderland, Julie Elliott



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It is fair to say that Nissan, like nearly every other car maker, has been taken aback by the ferocity of the decline in sales of diesel-powered vehicles. Like any responsible and well-managed company, it has a duty to its shareholders to respond to the change in circumstances, drastically if necessary.

So the demonisation of diesel is obviously a key factor and especially given the recent weakness of Nissan’s sales in Europe which, last year, declined by 14%.

Another, despite it not being explicitly cited by Nissan, is undoubtedly the free trade agreement that was signed last week between the EU and Japan.

This agreement, the largest bilateral trade deal ever, will remove nearly all of the tariffs the EU applies to Japanese goods.

This will make Japanese-made products more competitive in the EU and cars, where all tariffs will be eliminated during the next decade, particularly so.



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With demand in Europe for the X-Trail lower than expected, due to diesel demonisation, Nissan can be forgiven for focusing more on its domestic production in Japan and especially given the confusion over the UK’s future trade relationship with the EU.

The new free trade deal means that it will be cheaper for Japanese companies to start producing in Japan rather than in Europe, including the UK.

Particularly when, in contrast to the way the EU has consistently frowned on the development grants the UK government has offered carmakers, Japan’s government now offers increasingly attractive incentives to the industry.

And, of course, the X-Trail is already in production in Japan. It makes far more sense, from a cost point of view, for Nissan to ramp up production at an existing facility rather than start afresh elsewhere.

Another factor likely to have contributed to this decision, again not explicitly mentioned in the letter, is Carlos Ghosn’s recent sacking as chairman of Nissan.

Mr Ghosn was instrumental in extracting a commitment from the UK government, months after the vote to leave the EU, that Nissan’s ability to export to and from the EU would not be “adversely affected” by the UK’s future relationship with the bloc. His departure may mean a change in the relationship Nissan has with the UK government.

It is also worth noting – as, apparently, members of the Sunderland workforce have been during the last 48 hours – that no jobs will be actually be lost as a result of this announcement.

It simply means that the estimated 740 or so jobs that would have been created as a result of production of the X-Trail will now not be. It does not mean any of the existing 7,000 or so workers at Sunderland will lose their jobs.

As Mr de Ficchy said in the statement: “Our workforce in Sunderland has our full confidence and will continue to benefit from the investment planned for Juke and Qashqai.”

However, although Brexit has been an aggravating factor in Nissan’s decision rather than the primary cause, no-one should be sanguine about this news. As Mike Hawes, chief executive of the Society for Motor Manufacturers and Traders, told Sky News today, a no-deal Brexit in particular would be catastrophic for the UK’s automotive industry.

The problems afflicting Nissan, particularly the sudden unexpected drop in diesel sales, are common to all carmakers.

And they come at a time when the global car-making industry faces huge costs as it seeks to build capacity in driverless and electric vehicles.

There is a need for a lot of these companies to conserve capital. It was instructive that, last month, Ford and Volkswagen announced plans to work together on both driverless and electric technology. If these two giants, each with their huge research and development budgets, feel the need to work together it gives you some idea on the kind of pressure company balance sheets are under in the sector.

To that end, Nissan’s employees in Sunderland can take comfort in the fact that the company has no plans to remove production of the zero-emission Leaf, the world’s best-selling electric vehicle. The Leaf enjoyed record sales in Europe last year in almost every month and, as electric vehicles continue to gain traction, should continue to do so.

The model is clearly more important for Nissan’s future than the X-Trail. Had Sunderland been losing Leaf production, while the X-Trail remained, that would have been far more disturbing.


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