Nissan in Need: Car manufacturer faces record losses
August 8, 2020
3 min read
What's going on here?
The car manufacturer Nissan has forecasted a record annual loss of $4.5bn in light of the ongoing coronavirus pandemic and the added pressure of a prospective no-deal Brexit.
What does this mean?
The company has been struggling to thrive after a series of unfortunate events starting with its aggressive expansion over the last decade and most recently the arrest of former Nissan CEO Carlos Ghosn (to read more about this, click here). Alongside this, Nissan has had to mitigate the effect of chaotic Brexit trade negotiations, the coronavirus pandemic and cracks in its partnership with Renault.
Nissan has predicted its lowest sales in a decade and is subsequently looking to cut costs by $2.7bn by shutting production plants and re-evaluating the efficiency of its plants in locations such as the UK. Nissan is not the only car manufacturer struggling to revive sales in the current economic climate, its partner Renault has announced it would remove 15,000 jobs worldwide in an effort to cut costs by $2.1bn.
What's the big picture effect?
Experts have expressed their concern for the survival of the car industry due to the economic fallout of the pandemic. The industry is doubly vulnerable in the UK in light of the uncertainty surrounding Brexit trade deals and relations with the EU.
Whilst the Nissan manufacturing plant in Sunderland has temporarily been spared from closure, unlike the plant in Barcelona, company representatives have expressed that a no-deal Brexit would make its operations in the UK “unsustainable”. Around 70% of cars manufactured in Sunderland are sold in the EU. A 10% export duty implemented as a default under World Trade Organisation rules in the event of a no-deal Brexit would severely jeopardise “the entire business model of Nissan Europe”.
To add to the severity of the situation, Koji Endo, Head of Equity Research at SBI Securities has warned that Nissan’s cost cuts are not sufficient enough to revive its business unless global car sales make a drastic rebound which is unlikely to happen at the current pace of recovery.
The UK motor industry has called for a “restart package” to drive consumer demand and ease cash flow issues as the sector prepares to reinvigorate, warning that one in six jobs are at risk. The Society of Motor Manufacturers and Traders (SMMT) has stated that a hard Brexit on top of the pandemic was “still the biggest threat to the long-term future of the industry in the UK” and has urged the government to step in and work with the EU in order to draw up a free trade deal.
With cost-savings unlikely to be enough, the UK car production industry is clearly in need of government intervention in order to avoid collapse. Economists have been hoping for a V-shaped recession; a recession in which the economy suffers a sharp but brief decline followed by a strong recovery. However, it is becoming increasingly evident that a U-shaped recession (a sharp economic decline followed by a prolonged depressed period and slower recovery) may be more realistic in light of the growing number of companies announcing redundancy plans to cut costs.
Pressures of leadership troubles, Brexit and now Coronavirus may culminate to make continued operation in the UK an impossibility for Nissan. Such a withdrawal would wreak havoc in Sunderland and deal a serious blow to the current government’s aim to “level up” Britain.
Report written by Emily Noble
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