Smoke and mirrors between Theresa May and Nissan UK

Press barking up the wrong tree: The only deal probably was to exchange one vague, meaningless press release from Theresa for another vague, meaningless press release from Nissan.

Theresa May must have been horrified and appalled meeting with Carlos Ghosn. Here is a Brazilian born, Lebanese and French national; French educated; fluent in those three languages, English and with working knowledge of Japanese; logging 150,000 miles per year by splitting his time between France and Japan and of course Chief Executive and Chairman of arguably the most successful European-Japanese merged business in the world: Renault-Nissan. Ghosn is the prototype of that International Elite whom Theresa denounced so fervently at the Conservative Party conference as “If you believe you’re a citizen of the world, you’re a citizen of nowhere. You don’t understand what the very word ‘citizenship’ means.” Oh, how Ghosn is the antithesis of Theresa’s Little England paranoia.

Such are the trials of being Prime Minister that Theresa had to hold her nose and meet with this globetrotter from ‘nowhere’. Ghosn had gone in on 14th October having said that Nissan may not invest in its Sunderland plant unless the Government guaranteed compensation for costs tied to any new trade tariffs resulting from Brexit.[1] The pair emerged with Theresa stating in the press release “This government is committed to creating and supporting the right conditions for the automotive industry to go from strength to strength in the UK, now and into the future.” Two weeks later Ghosn responds through a Nissan release: “The support and assurances of the U.K. government enabled us to decide that the next-generation Qashqai and X-Trail will be produced at Sunderland. As a result, Nissan will increase its investment in Sunderland, securing and sustaining the jobs”.

Speculation is rife what the deal is that Theresa and Ghosn struck: compensation for tariffs, or tax breaks, or employment & training schemes, or any other financial support. Theresa and partner in crime Business Secretary Greg Clark insist that ‘no chequebook’ was involved although Clark refused to comment on The Times report that he had written to the Nissan Board promising to ensure that UK operations would “remain competitive”. Simon Jenkins in the Guardian flatly states “The idea that industry Minister Greg Clark could have got away with “just trust me” is ludicrous.”

What if the only deal was: one vague, meaningless press release from Theresa for another vague, meaningless press release from Nissan? Consider the business issues.

The Sunderland plant is a massive cumulative investment of £3.6 Billion by Nissan since 1985. Companies loath to walk away from such sunk costs and need to make the best of a bad situation. With all the Brexit uncertainty, at a minimum Ghosn had to maintain morale of employees and suppliers for the duration of Brexit negotiations and until the new terms are clear. For now, all the old trade agreements still rule and the company needs to maximize profits which is only possible if the entire supply-chain works at optimal efficiency.

Actually, Nissan UK produced 7% or 34,000 fewer cars in 2015 than it did in 2012. At 477,000 cars made in 2015, that is almost four weeks of production. Clearly, there is a capacity-usage and fixed cost coverage requirement to build more cars. That has to be a new model as the old models are obviously declining in sales. Hence, the ‘next Qashquai and new X-Trail’ are nice but it appears replacement production and not incremental.

Ghosn is only ‘securing’ jobs because with old models tailing off, the new models simply refill available capacity. No new jobs are created. Similarly, ‘increase investment’ can mean a lot of things. New models need re-tooling. That is an ‘investment’, but in the scheme of things minimal and is done very quickly. Definitely, it will not mean the building of a new production line.

Nissan did not give a time-line for production start- up, although the press speculates on 2018. That leaves a lot of time for Ghosn to change his mind. If the actual terms of Brexit turn out to be bad for Nissan, the threat of reducing commitment to Sunderland is still there. Let’s not forget that in January 2009, Nissan UK made 24% or 1,200 employees redundant. It is painfully obvious that if there was ‘no chequebook’ now, adverse tariffs will require a ‘chequebook in the future’.

Ghosn was called “the hardest-working man in the brutally competitive global car business”. He is also ruthlessly competitive. We should be clear: with one simple press release he has made Theresa feel a bit better, made his employees and supplier feel a bit better, but has given up none, zero, of his flexibility to change his mind and still reduce commitment to the UK if it were necessary for his business!

London 27th October 2016

 

 

[1] City AM 28th October