Sterling threatens Nissan

Nissan's Sunderland factory churns out 330,000 cars a year

The UK car industry is in trouble again, after a threat by Nissan to shift production from its Sunderland plant to the continent because of the strength of sterling.

We cannot make a decision until we have some guarantees we can count on for the future

Nissan's Carlos Ghosn

Sunderland is Europe's most productive car factory, with 5,000 workers building about 330,000 cars a year. Production could drop by as much as 50% if it fails to win its bid to build the new Micra model.

Also at stake are thousands of jobs with suppliers of the company.

Nissan is under major pressure to restructure itself worldwide to become profitable again. The company is now controlled by Renault, which has begun a massive programme of plant closures in Japan.

Carlos Ghosn joined Nissan from Renault to turn around the ailing Japanese car maker

A number of other car firms - among them Toyota, Honda, BMW and General Motors (Vauxhall) - have already expressed their unease about the value of the pound, and warned that uncertainty about British membership of the euro could affect their investment decisions.

Ford recently announced that it would end car production at Dagenham by 2002, with the loss of several thousand jobs, although the company said that this decision was not related to currency fluctuations

Exports under pressure

Nissan's warnings are bound to fuel the debate in the UK, and especially British industry, over euro membership.

The logical place for Micra is Sunderland, but we cannot make a decision until we have some guarantees we can count on for the future

Carlos Ghosn, Nissan President

Carlos Ghosn, the president of Nissan, told the Financial Times newspaper that his company needed "some guarantees we can count on the future".

He did not explicitly call for euro membership, but demanded measures to ensure stable exchange rates.

Mr Ghosn said Nissan would have pulled out of the UK already, were it not for the productivity of its Sunderland operations.

Thousands of jobs depend on Nissan's Sunderland plant

But he warned that the company could not "stay in a position where every six months we have a crisis".

At stake is a £150m investment, which could have pushed annual production figures to 400,000 cars.

About 75% of the cars built at Sunderland - from the Micra, Primera and Almera model range - are exported, and the high pound is cutting deep into profit margins.

Industry experts said Nissan could switch production of the Micra to the firm's Barcelona plant or factories operated by Renault elsewhere in Europe.

In 1999, the Micra accounted for 58% of production at Sunderland.

The recent expansion of the UK car industry has been driven by Japanese companies who hoped to use their UK base to expand their sales throughout the EU.

Political fallout

Industry analysts say Mr Ghosn's threats are more than an attempt to scoop up government subsidies.

Mr Ghosn is expected to meet Prime Minister Tony Blair and Trade Secretary Stephen Byers in the next few days, putting further pressure on the government to back the European single currency.

Nissan's threat could deepen splits in the cabinet over whether the government should press for a speedy decision on joining the euro.

It could also call into question the future of long-term foreign investment in Britain, which the government says is increasing because of its pro-business policies.

A Downing Street spokesman said the car industry was "a hugely important industry and Nissan is an important, valued employer".

He said Nissan had not requested a meeting yet, but "any discussions that the Government can usefully have, the Government will have".