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Last Updated: Friday, 24 September, 2004, 11:37 GMT 12:37 UK
Why Nissan chose to stay in the UK
Jorn Madslien
BBC News Online business reporter at the Paris Motor Show

The Tone

Nissan's announcement at the Paris Motor Show that its Almera model replacement is to be made in Sunderland in the North East of England brought relief to workers at the factory.

Production of the Tone, a small people carrier, will start in 2006, safeguarding 1,000 jobs at the plant that some had feared could be at risk because Britain was not a member of the euro.

Nissan's chief executive Carlos Ghosn has previously threatened to shift car production out of the UK in order to reduce currency risks incurred by operating outside the eurozone.

But currency risk is just one of many costs a car maker has to consider when deciding whether or not to move production. Labour costs and terms of employment are other factors.

So whereas the UK may be disadvantaged by the strength of sterling, car makers in France, for example Nissan's partner Renault, are constrained by the 35-hours working week.

Low wages

Carlos Ghosn at the Paris Motor Show 2004
Nissan's Carlos Ghosn sees the logic of staying in the UK
It could be said that both companies are now seeing the benefits of working with existing sites rather than starting afresh.

Nissan has managed to reduce currency risk at its factory by asking many of its suppliers to accept payment in euros, thus matching its expenses with its revenues.

Shifting production to countries where salaries and many other costs are lower may not be the right solution, or so goes the latest thinking within the Renault-Nissan partnership.

"If you were to decide to create a new site, a greenfield, probably today you would decide to do it in the Czech Republic, in Slovakia or in Poland," said Louis Schweitzer, chief executive of Renault.

"But the question is; do you want to develop existing production bases in Western Europe, or do you want to scrap it or try to reduce it to create a greenfield, let's say in the Czech Republic.

"If you look at the figures.. it makes more sense to build on your existing base because you have existing investments, you have less fixed costs and you have more flexibility than if you develop a new plant from scratch."

Extra shift

Renault chief executive and chairman Louis Schweitzer
Stay or go? Mr Schweitzer says stay
Renault's production of its Scenic model is an example of how car makers can find smooth ways of dealing with constraints, Mr Schweitzer said.

When it turned out that demand for the Scenic outstripped supply "we added a third shift", Mr Schweitzer explained.

"Which meant no investment, no fixed costs, no extra white collars - only extra blue collars, and 50% additional capacity, which for two lines producing 60 cars per hour is equivalent to a (new) plant.

"And if ever sales do not justify keeping those three shifts, you go back to two shifts."

Such flexible solutions would not have been available to Renault had it built a new plant in Eastern Europe, Mr Schweitzer pointed out.

Diminishing returns

Nissan Tone
The Nissan Tone will be produced in Sunderland
Labour may be cheaper than in France, at least for factory floor workers, but such differences diminish over time, he pointed out.

Renault also negotiated a deal with the trade unions about how the 35-hour week should be implemented.

Rather than merely shortening the working week from 39 hours, the unions agreed to take an extra two weeks holiday a year, at times when it suited the company, a deal which greatly reduced the impact of the shorter working week on the company, Mr Schweitzer said.




SEE ALSO:
Paris gears up for motor show
23 Sep 04  |  Business
Nissan boom boosts Renault profit
10 Feb 04  |  Business


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