Aid offer to Nissan

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

The UK government is reportedly preparing an aid package of almost £100m for car maker Nissan's Sunderland plant, which is under threat because of the pound's strength.

The Sunday Times said that Prime Minster Tony Blair and Trade and Industry Secretary Stephen Byers were to make the offer at a meeting Nissan's President, Carlos Ghosn.

The paper did not specify when the meeting would take place, only saying that it was due soon.

The reported move comes just days after Mr Ghosn said Nissan may be forced to shift production from its Sunderland plant to the continent because of sterling's strength against the euro and was critical of the UK's uncertain position on euro membership.

And now it seems the government is ready to rush to Nissan's aid.

Compensation instead of euro

The Sunday Times quoted a government expert as saying that: "Since the government cannot give Ghosn a guarantee that we will join the euro at a certain date, the most it can do is compensate for the exchange rate disadvantage by offering substantial investment aid."

The paper said the package could probably gain European Union approval because of the threat of jobs in the Sunderland area.

Mr Ghosn's statement late last week was a major blow to the UK car industry, which has been facing tough times.

Rover nearly closed after BMW said it was pulling out of the loss-making company, only to be saved by the Phoenix consortium.

Ford recently announced that it would end car production at Dagenham by 2002, with the loss of several thousand jobs.

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.

Late last week, Mr Ghosn 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.

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

Toyota's call for solution

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.

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.

The Sunday Times quoted Bryan Jackson, a senior director of Toyota UK, as warning that the company could freeze investment at its Burnaston factory in Derbyshire because of the pound's strength.

"What Toyota seeks is a solution to the current exchange rate problem so we can operate fairly and properly within the European market," the paper quoted Mr Jackson as saying.

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.