SUNDERLAND, ENGLAND --
To be on the continent or not to be on the continent?
That was the question for Nissan Motors (www.nissan-europe.com
) in locating its operation to manufacture a new Micra model for the European market.
The answer surprised some: not
on the continent. Picking between UK and French sites, Nissan last week chose to make its US$300 million investment at its existing operation in Sunderland, England.
Located on England's northeast coast (www.onenortheast.co.uk
), Nissan's Sunderland operation won out over Renault's existing factory in Flins, outside Paris. Renault bought a controlling interest in Nissan in the spring of 1999, creating the world's fourth-largest automaker. The Sunderland-built Micra will be the first auto manufactured around a common Renault-Nissan platform.
"As you know, Sunderland is the leading European car plant in terms of productivity, and has been in that position for many years," Nissan CEO Carlos Ghosn said in announcing the decision.
The expansion will make Sunderland Europe's largest auto plant, with annual output rising from 330,000 to 500,000 vehicles a year.
ABOVE: The next-generation Micra built at Sunderland will be the first auto manufactured around a common Renault-Nissan platform. By 2010, company officials plan to cut Nissan's current 24 platforms (including the 2000 Micra pictured) to only 10.
Exchange Rates Spurred Ghosn Warning
The decision, though, was anything cut and dried. Nissan picked Sunderland only after more than six months of weighing a host of complex factors, particularly concerns over currency-exchange rates and labor relations. Ultimately, Nissan's decision seems to have skillfully hedged the company's bets.
The currency issue gained an extremely high profile in mid-summer. First, the British press disclosed an internal memo leaked from the Invest in Britain Bureau (since renamed Invest-UK at www.invest.uk.com
). The leaked memo warned of looming plant closures if the UK didn't adopt the euro common currency. (Twelve of the European Union's 15 nations comprise the "euro zone": Austria, Belgium, Germany, France, Finland, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.)
Less than a week later, Ghosn warned that concerns over exchange-rate losses (from the pound to the euro) might prompt Nissan to move next-generation Micra production to the continent. And Ghosn had a very salient point: 75 percent of Sunderland-built autos are sold in continental Europe.
ABOVE RIGHT: The UK's $40 million grant "swayed the balance, particularly in the short term,"
said Nissan Chief Ghosn, known in French auto circles as "le cost-cutter."
BELOW: Nissan's decision "is a tremendous tribute to Sunderland's management and work force," said Blair.
$58.5 Million Grant 'in Record Time'
Prime Minister Tony Blair (www.number-10.gov.uk
) quickly huddled with Ghosn at 10 Downing Street. Soon after, British authorities successfully petitioned the European Commission for permission to offer a $58.5 million grant to Nissan's UK operations.
"When the Prime Minister and I met Mr. Ghosn last July, it was made clear that securing European Commission approval for our offer of 40 million-pound grant aid would be one of the factors which would influence this decision," British Trade and Industry Secretary Stephen Byers recounted after Nissan's announcement. "We achieved approval . . . in record time."
Ghosn, also speaking after the announcement, allowed, "The regional selective assistance, swayed the balance, particularly in the short term."
Labor Flexibility a Major Issue
But the balance wasn't swayed. Not yet. Even with the approved incentives, Nissan spent many more months weighing other issues, particularly labor.
Prior to Nissan's beginning its location search, Sunderland workers had accepted highly flexible shifts that would allow seven-day-a-week production.
In contrast, French workers were limited to 35-hour workweeks. In addition, French labor leaders didn't sound keen on landing the project. "The conditions at Flins are already detestable," Philippe Martinez, CGT union head at Renault, told BBC News Online www.bbc.co.uk). "People . . . work long hours in very difficult conditions. We don't need more work, there's too much of it."
That contrast gave Sunderland a major leg up. The flexible work shifts, for example, will enable Nissan to add only 500 jobs to Sunderland's 4,900 existing positions. (Winning the expansion, though, allows Sunderland to avert substantial job reductions that some analysts estimated could have run as high as 1,300 if Nissan had picked the French site.)
Nissan's British management also committed to "a 30 percent cost reduction through 2003," said Ghosn, who's known in French auto circles as "le cost-cutter."
Blair called Nissan's decision "a tremendous tribute to Sunderland's management and work force. I think it underlines once again that Britain is a major place in Europe for attracting inward investment, and it is important also to stress the fact that we have a skilled and productive work force."
Continental Components Hedge Risks
Retrofit costs and time pressures also became major decision factors. Nissan discovered that a Flins retrofit would cost $569 million and might not be finished in time to go online in 2003.
Even in picking Sunderland, though, Nissan was cognizant of currency-exchange risks.
The automaker stipulated that the new Micra's less expensive components will be bought from euro-zone suppliers. As a result, only 55-60 percent of the new Sunderland-built Micras' components will be UK-made. In contrast, 72 percent of previous Micras' components have been UK-made. The difference will cost UK components manufacturers $1.46 million in annual business, analysts estimate.
Even so, Nissan's announcement hits a sanguine spot for a beleaguered UK auto industry. Several automakers have recently announced high-profile cutbacks, including Ford, which will stop making vehicles at its Dagenham plant, and Vauxhall, which will close its Luton auto plant.