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UK car industry faces 'death by a thousand cuts' after Nissan decision

Nissan’s decision to build its X-Trail SUV solely in Japan instead of Britain is the latest setback for the UK car manufacturing industry. But it’s not expected to be the last as Brexit uncertainty bites.

“The real danger is, in the long run, we’re going to see ‘death by a thousand cuts’ and the industry becomes, essentially smaller and smaller, and thereby loses scale and competitiveness,” warned Oxford professor Matthias Holweg, who specialises in manufacturing and operations management. “It’s an immediate, logical consequence of the continued uncertainty surrounding Brexit.”

Nissan said in 2016, just months after the UK voted to leave the European Union, that it would manufacture the next-generation X-Trail in Britain – a major vote of confidence in the country and new UK prime minister Theresa May. Now the company has done a U-turn, with plans to keep all X-Trail production in Japan.

Nissan’s Europe chairman Gianluca de Ficchy said that “continued uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future.”

The Nissan (7201.T) announcement comes less than a month after Jaguar Land Rover and Ford (F) announced thousands of job cuts at UK factories.

Nissan has confirmed it will not build the X-Trail SUV at its Sunderland factory. Photo: Scott Heppell/Getty Images
Nissan has confirmed it will not build the X-Trail SUV at its Sunderland factory. Photo: Scott Heppell/Getty Images

Large auto manufacturers have been struggling with a huge slump in European diesel car sales, a slowdown in Chinese purchases and a tough transition to a new EU emissions-testing system. The threat of a disorderly Brexit in late March is further weighing on the industry.

Nissan builds roughly 30% of the UK’s 1.52 million cars and exports the vast majority to the continent. The threat of a no-deal Brexit raises the risk of new tariffs on car parts and finished vehicles. It’s also expected to lead to huge border delays, which would be deeply damaging for factories that rely on just-in-time manufacturing.

Nissan is also expected to benefit from building more of these SUVs in Japan and exporting them to Europe since the two sides recently ushered in a landmark free trade deal.

“Nissan can build the car in Japan and export to Europe, and because of the new EU-Japanese trade deal, that will be increasingly tariff-free,” said David Bailey, professor of industrial strategy at Aston University.

It’s widely believed that a collapse in European purchases of diesel vehicles also contributed to the decision to keep all X-Trail production in Japan, since these kinds of SUVs are often powered by diesel.

However, the company had not confirmed what kinds of fuel would power its next-generation X-Trails. Nissan has increasingly been moving towards investing in new driving technologies, powertrains and electrified options for its next-generation vehicles. The company said last year that it would stop building diesel-powered passenger vehicles in Europe from 2021.

The long-term impact

When an auto manufacturer announces it’s going to build a new model at one of its factories, the impact may not initially be seen at the other facilities. However, as production ramps up over the years and older models are phased out at other plants, jobs invariably move, experts have warned.

“It’s not the individual model decision that is the problem, but the fact that we are expecting to see continued model decisions to be taken against the UK,” Holweg told Yahoo Finance UK.

The UK’s business minister Greg Clark said 740 new jobs were due to be created by the X-Trail investment, but none of the existing workforce would be hit by the decision to pull the model.

UK ministers are now reportedly considering whether to withdraw a £60m ($78.5m) package of support for Nissan.

Nissan’s Sunderland factory builds the Juke, Qashqai and eco-friendly Leaf models.

Other future models planned for Nissan Sunderland Plant – the next-generation Juke and Qashqai – are unaffected,” the company said in a statement.

Voters in Sunderland voted by a wide margin in favour of Brexit, with just over 61% backing the prospect of a UK divorce.

“Many of those that voted for Brexit will be those that are hardest hit, and I think that’s the most unfortunate thing about Brexit,” Holweg said. “People in manufacturing are more likely to suffer the consequences.”

With files from Reuters

READ MORE: Car factory shutdowns would cost over £100m a day with a no-deal Brexit