{"id":25824,"date":"2017-11-15T21:22:23","date_gmt":"2017-11-16T02:22:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/nissans-seat-at-the-brexit-poker-table\/"},"modified":"2017-11-15T21:22:23","modified_gmt":"2017-11-16T02:22:23","slug":"nissan-at-the-brexit-poker-table","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/nissan-at-the-brexit-poker-table\/","title":{"rendered":"Nissan at the Brexit Poker Table"},"content":{"rendered":"

In the five minutes it takes you to read this essay, the Nissan Sunderland plant in the UK \u2013 regularly praised as one of the world\u2019s best \u2013 can produce ten new vehicles [1]. Eighty percent of its production goes overseas, and although most exports go to Europe, on a given day, Sunderland may be producing Qashqai model SUVs for a market like Costa Rica, one of its 100 export destinations [2]. In Costa Rica, the Qashqai\u2019s extraordinary quality and competitive cost, both directly attributable to Sunderland, helped make it the #1 imported vehicle by volume in 2016, dwarfing figures for models produced in Korea, Japan, and elsewhere [3]. <\/em><\/p>\n

That is the power of global trade. It is precisely what isolationism \u2013 Brexit \u2013 threatens to destroy, and in this case, it is a key competitive edge for Nissan that may just go \u2018poof\u2019 in a few years\u2019 time.<\/p>\n

Brexit: Not Just a Europe Problem <\/strong><\/p>\n

New tariffs for EU-bound vehicles usually take the spotlight of Brexit concerns; however, the fact is that British government must negotiate trade agreements for all new trade partners, not just the EU. Maintaining equally favorable conditions as those enjoyed being a member state seems unlikely, and the key question for Nissan is whether autos will enjoy free trade from the UK into Europe and other key markets.<\/p>\n

But new importing costs are not the only concern; production costs are also certain to rise. Equally hurtful, if not more, than new vehicle duties are tariffs on the plethora of imported parts that go into a UK produced car. Across the English car-manufacturing industry, only 41% of the vehicle parts are produced domestically [4]. Material costs are bound to increase, and the effect could even be compounded in some cases of EU sourced parts that travel back and forth across the Channel, worked on alternatingly in the UK and EU.<\/p>\n

Lastly, seceding from the Customs Union, a highly likely Brexit implication, will directly affect Sunderland\u2019s just-in-time operations. New customs controls and border inspections will delay and disrupt the free flow of parts sourced from Europe. Sunderland consumes up to 5M parts per day [5]. It\u2019s high output level means the slightest increase in days (hours) of raw materials stock would produce noticeable cost increases.<\/p>\n

Nissan Reacts (a Little)<\/strong><\/p>\n

Despite the huge implications of Brexit on the competitiveness of the Sunderland plant, Nissan\u2019s top management has remained incredibly calm and has adopted a \u2018wait-and-see\u2019 approach. In a WSJ interview, Carlos Ghosn, chairman of Nissan, states:<\/p>\n

\u201cWhat is Brexit? What does it mean? We are business people, we can\u2019t assume\u2026 [6]\u201d<\/p>\n

Perhaps the reason for Ghosn\u2019s tranquility is the outcome of a closed-door meeting held with Theresa May in October 2016, from which Ghosn emerged with \u201can agreement \u2026 that the competitiveness of [Sunderland] would be preserved [7].\u201d Neither parties disclosed how, but Ghosn mentioned as an example that tariffs may hurt Sunderland, but other factors like a weaker currency would work in their favor. Government would help ensure that these factors at least net out.<\/p>\n

Even with these assurances and Brexit\u2019s uncertainness, Nissan has not been entirely cross-armed. The company has been lobbying for vehicle free trade on both sides of the Channel, has asked the British government to remain in the Customs Union, and has started discussions about how to create a supplier base of high-tech auto parts from which to source domestically.<\/p>\n

Age of Isolationism<\/strong><\/p>\n

Though Ghosn remains \u201creasonably optimistic that common senses will prevail on both sides\u201d of the new UK and EU negotiations [8], Nissan should be doing much more contingency planning around Brexit and other isolationist threats. Brexit will eventually happen and it will hurt Sunderland\u2019s competitiveness.<\/p>\n

In the short term, Nissan should evaluate alternative plants from which to source production for the European market. This search for Sunderland alternatives should be made public to keep shareholders at ease, to incentivize bidding from the plants and their cities, and to add pressure on the British government to secure favorable Brexit terms for Nissan.<\/p>\n

For the medium and long term, R&D investments on how to make production lines more versatile in terms of the models they produce is also something Nissan should consider. When analyzing alternatives for Sunderland, an unexpected candidate is the production plant of sister company Renault in Flins, France, where this January the Nissan Micra became the first Nissan passenger car to be produced in a European Renault plant. This cross-production capability may become a huge advantage for the Renault-Nissan-Mitsubishi Alliance in the new age of isolationism, enabling it to leverage the network of production facilities of all three companies to produce vehicles in locations where it is most trade efficient.<\/p>\n

Instead, Nissan has recently commenced production of two new models in Sunderland [9]. Like others, is Nissan calling the UK\u2019s Brexit bluff? Or is there simply not much else it can do?<\/p>\n

(Word Count: 799)<\/p>\n

Sources<\/span><\/p>\n

    \n
  1. Graham Ruddick and Phillip Oltermann, \u201cA Mini part’s incredible journey shows how Brexit will hit the UK car industry\u201d The Guardian<\/em>, March 3, 2017, https:\/\/www.theguardian.com\/business\/2017\/mar\/03\/brexit-uk-car-industry-mini-britain-eu<\/a>, accessed November 2017.<\/li>\n
  2. \u201cNissan Announces 2016 UK Production Statistics,\u201d press release, January 26, 2017, on Nissan Newsroom Europe Website, https:\/\/newsroom.nissan-europe.com\/eu\/en-gb\/media\/pressreleases\/426175387\/nissan-announces-2016-uk-production-statistics<\/a>, accessed November 2017.<\/li>\n
  3. Source: Database of Costa Rica New Vehicle Imports, AIVEMA, accessed November 2017.<\/li>\n
  4. Graham Ruddick and Phillip Oltermann, \u201cA Mini part’s incredible journey shows how Brexit will hit the UK car industry\u201d The Guardian<\/em>, March 3, 2017, https:\/\/www.theguardian.com\/business\/2017\/mar\/03\/brexit-uk-car-industry-mini-britain-eu<\/a>, accessed November 2017.<\/li>\n
  5. Lisa O\u2019Carroll, \u201cBrexit means taxpayers need to support supply chain, says Nissan,\u201d The Guardian<\/em>, February 28, 2017, https:\/\/www.theguardian.com\/business\/2017\/feb\/28\/brexit-taxpayers-support-supply-chain-nissan-sunderland-car-auto<\/a>, accessed November 2017.<\/li>\n
  6. \u201cCarlos Ghosn Talks Globalization, Brexit and the Benefits of Japan,\u201d interview by Peter Landers, Wall Street Journal, May 16, 2017, https:\/\/www.youtube.com\/watch?v=RK6QQgPeQ_E<\/a><\/li>\n
  7. \u201cRenault Nissan CEO Ghosn on Brexit, UK Facilities,\u201d interview by Francine Lacqua and Erik Schatzker, Bloomberg, January 18, 2017, https:\/\/www.bloomberg.com\/news\/videos\/2017-01-18\/renault-nissan-ceo-ghosn-on-brexit-u-k-facilities<\/a><\/li>\n
  8. \u201cRenault-Nissan ‘reasonably optimistic’ over Brexit,\u201d interview by Daniel Gallas, BBC News, August 5, 2016, http:\/\/www.bbc.com\/news\/business-36981182<\/a><\/li>\n
  9. Sam Dean, \u201cNissan to increase production in Sunderland by a fifth,\u201d The Telegraph<\/em>, August 28, 2017, http:\/\/www.telegraph.co.uk\/business\/2017\/08\/28\/nissan-increase-production-sunderland-plant-fifth\/<\/a>, accessed November 2017.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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