The long read: In the 1980s, Thatchers government sold Britain as a gateway to Europe. Nissan came to Sunderland and thrived but now its future is uncertain
Earlier this year, when the British government’s assessments of the economic impact of Brexit were finally published, they revealed that the north-east of England was at risk of the deepest damage. Although the region still bears scars from the decline of heavy industry in the 1980s, today the north-east is the only part of Britain that exports more to European countries than it imports. And, amid the region’s new and rebuilt industries, such as pharmaceuticals, the most significant engine of recovery has been Nissan, the Japanese carmaker, which is housed in a giant factory complex just off the A19 at Washington, near Sunderland.
The plant was opened with great ceremony by Margaret Thatcher in 1986. Sharon Hodgson, now Labour MP for Washington and Sunderland West, which includes the plant, remembers that as a teenager, she was amazed when it was announced that Nissan would be setting up there. “Growing up in the north-east then, we had seen everything close – the mines, the shipyards, so many people put out of work. It was the cruellest, most awful time,” she said. “As a young woman, I remember the feeling of hope and optimism when Nissan came, the shock and surprise that we were actually going to get something.”
Since then, Nissan’s operation has expanded to cover a 800-acre site, running two production lines that produce 519,000 cars per year – about 55% for export to other EU countries. According to the company’s most recent annual report, for 2016-17, Nissan’s UK operation generated £6.4bn from sales, employed 7,755 people and paid these workers, mostly living in the north-east, £427m in wages. Companies supplying parts to Nissan employ a further 30,000 people across Britain.
“Nissan hasn’t been able to bring full recovery to the area; decline and deprivation are still prevalent,” said Hodgson. “But they are a massive employer, providing good jobs, including the supply chain which is so important. You have father and son working there now, a real sense of pride, and that productivity and quality is why it has been so successful.”
Yet today, there is serious concern at Nissan that Brexit threatens to damage its operation in Sunderland. The clearest explanation of how its UK business depends on EU membership was provided in February 2017 by Nissan executive Colin Lawther, appearing before parliament’s international trade committee. Lawther, a chemist by training, began his career with Nissan in 1985, as one of the key workers responsible for setting up the laboratory operation in the Sunderland plant. He went on to become Nissan Europe’s senior vice-president for manufacturing, purchasing and supply-chain management, before retiring earlier this year.
To produce as many cars as it does, Lawther explained, Nissan Sunderland needs to receive and fit 5m parts each day. Of these parts, 85% are imported, mainly from Europe. The plant holds only enough parts for half a day’s production, because it is expensive to store them, so the whole multi-billion pound operation relies on these millions of parts arriving daily with no barriers or customs delays.
Because Britain is currently part of the EU, this is a straightforward process. Each of the 28 EU member states belongs to the single market, which has been designed to facilitate trade by removing tariffs, as well as other trade and customs barriers. Rather than having 28 different industrial safety regulations, for instance, there is a single set of regulations that applies across all member states. The single market means trade between 28 different countries is free, fast and “frictionless”, just as it would be if the EU were one very large country. “Frictionless trade has enabled the growth that has seen our Sunderland plant become the biggest factory in the history of the UK car industry, exporting more than half of its production to the EU,” Nissan said, in a statement for this article.
“We build two cars every minute,” Lawther told the committee in 2017. “So you have 5m parts coming in every day, and you have half a day’s worth of stock. Any disruption to that supply chain is a complete disaster.
“We are talking about plant efficiency, downtime efficiency – to be world-class, we have to be 97% efficient. We are talking about two, three, four, six minutes a day of downtime on the production line. More than that is a disaster. If you start talking about interruption of supply of parts for hours, that is completely off the scale.”
If Britain leaves the EU without securing an agreement for continued frictionless trade – the “hard Brexit” outcome – Britain’s trading relationships would be regulated by World Trade Organisation rules, which do not allow for agreed product standards, and therefore will require customs checks at the borders with Europe. The rules also impose tariffs, including 10% on cars, 4.5% on car parts. For Nissan’s Sunderland operation, Lawther told the committee, as well as likely new delays at the borders, the impact of tariffs will add up to around £500m per year of additional costs, which would be “pretty disastrous”.
According to the government’s assessments, published in March, a “hard Brexit” would lead to a 16% economic decline in the north-east. London, by contrast, with its much more varied economy and the financial power of the City, would suffer a drop of only 3%.
The key figure in deciding the fate of Nissan’s operation in Sunderland is Carlos Ghosn, a global business executive born in Brazil to Lebanese immigrant parents, then educated in France. Ghosn, who became known as “le cost killer” after he restored the fortunes of Renault in the 1990s with his relentless efficiency drives, is not only chairman of Nissan, but also chairman of Renault and Mitsubishi, and of the Renault-Nissan-Mitsubishi Alliance that allows the three companies to work together to save costs. Renault owns 43.4% of Nissan, which in turn has bought a 15% stake in Renault, and 34% of Mitsubishi.
Since the vote to leave the EU, which was a shock to Nissan and other carmaking companies, Ghosn has consistently emphasised two main points in his occasional public statements. First, Nissan will not make further investments when they do not know what Britain’s future trading arrangements will be. Second, if leaving the EU significantly raises costs and trade barriers, Nissan will consider reducing its British operations. Sunderland is by far Nissan’s largest European plant, but the company has other factories in Europe. The current priority for the alliance, overseen by Ghosn, is a €10bn (£8.9bn) global cost-cutting programme to be implemented by 2022. It is increasingly moving towards a standard manufacturing method that can make both Renault and Nissan models. Already the Renault factories at Flins and Le Mans in France are making the Nissan Micra, in huge numbers.
Although it has invested £4bn since 1986 to make Sunderland its European base, Ghosn has said it will be reviewed if Britain becomes uncompetitive due to Brexit. “I don’t think any company can maintain its activity if it is not competitive,” Ghosn said in June. “If competitiveness is not maintained, little by little you’re going to have a decline. It may take some time, but you’re going to have a decline.”
Nissan’s Washington car plant does not look grand; it is a no-frills operation. Beyond the security gates and high railings, which are punctuated with turnstiles where the workers enter, the vast site consists of blank, imposing production sheds and basic office blocks. The main reception is a bare, functional lobby that has the feel of a 1980s school entrance. There, on a shelf, sit two Japanese Daruma dolls, which by tradition had their first eye painted – by Prince Charles and his then wife, Diana – when construction began in 1984, and the second – by Margaret Thatcher – when the plant opened on 8 September 1986.
In her landmark speech that day, Thatcher portrayed Nissan’s arrival as a British victory over the rest of Europe. “It was confirmation from Nissan,” she said, “that within the whole of Europe, the United Kingdom was the most attractive country – politically and economically – for large-scale investment.”
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