Brexit in full swing – How Nissan UK is forced to `re-think´ its Pan-European automotive supply chain

In light of highly uncertain Brexit negotiations, the export focus and multi-national supply chain of Nissan UK’s Sunderland plant pose a complex challenge to Nissan’s C-suite.

The UK Brexit vote on 23rd June 2016 came as shock to the entire UK car manufacturing industry which hitherto had been on the way to a 17-year production high of 1.7m units, 50% of which destined for continental Europe.[1]

Although this mark was eventually surpassed, helped by the Pound trading at a 30-year low post-vote and fuelling export activity, discomfort of the UK’s largest car manufacturer Nissan and its CEO Carlos Ghosn grew quickly in light of the looming political uncertainty around the UK’s future access to the EU single market. For Nissan, Brexit uncertainty represents a key issue as the company operates the UK’s largest and heavily export-focused automotive plant in Sunderland, recognized for its efficiency (#5 worldwide) and delivering 30% of the UK’s annual car output while employing 35,000 people directly and indirectly. [2] 55% of the plant’s annual production is exported to Europe while 50% of the plant’s assembly parts are sourced from abroad through complex multi-national (largely Pan-European) supply chains, making the plant particularly susceptible to potential Brexit restrictions on free trade and access to the EU single market. [3]

With Brexit negotiations currently in full swing, it is largely impossible to predict the final shape of a `Brexit trade deal´.[4] However, considering a worst-case scenario in which the UK would lose free EU single market access and hence would be forced to trade under WTO rules, Nissan’s management faces three key supply chain challenges:

Under WTO trade rules, tariffs of 10%/4.5% would be imposed on exported cars and components respectively.[5] As a result, profit margins on exported cars would be squeezed or even eliminated, assuming only limited pass-through due to price competition. Similarly, tariffs would increase Nissan’s imported assembly parts cost base as components typically travel multiple times between UK and Europe before being finally assembled in the UK. In total, Nissan management estimates total additional cost of £600m related to WTO tariffs.[6] In addition to tariffs, required border customs would lead to unavoidable supply delays, disrupting the Sunderland plant’s production flow and just in time supply chain (5m parts per day with only ½ day of safety inventory). According to Sunderland’s head of manufacturing, even a delivery delay of 2 min would represent “logistical nightmare”.[7] WTO trading rules would also hinder the establishment of free trade agreements (FTAs) due to local content regulations, requiring Nissan to meet a minimum share (set by WTO) of domestically sourced components before being allowed to export under FTAs.[5]

To proactively encounter a worst-case scenario, Nissan CEO Carlos Ghosn, has initiated a set of short-/mid-term operational and political measures to facilitate the `re-shoring´ of its supply chain, mitigating the potential impact of WTO regulations.[8] In this context, Nissan is leading an initiative to re-build its UK automotive supplier base by inviting suppliers to its UK operations and advertising its long-term commitment to its Sunderland plant as shown by the company’s decision to build the next generation Qashqai and X-Trail SUV at the facility.[9] Nissan also publicly communicated its plan to spend an additional £2bn with UK suppliers, almost doubling the £2.5bn of current spend on domestic parts and re-assuring potential new suppliers of its re-shoring ambitions.[10] Internally, Nissan will invest an additional £670m (on top of £3.7bn invested to date) into its Sunderland plant to reduce its dependency on external suppliers.[2] To support his plan, CEO Carlos Ghosn is taking a hard stand on UK premier minister Theresa May who granted £100m support funding to rebuild the broader UK supplier base, while guaranteeing Nissan insulation from potentially negative Brexit fallout. In the medium term, Nissan aims to significantly influence the `fine print´ of Brexit negotiations around local content requirements and hold the UK government accountable for its promises made under the £100m support fund. [7]

 In addition to the already initiated measures, Nissan could, in the short-term, engage, with other UK-based OEMs (e.g. Toyota, Jaguar, Range Rover) to form procurement collectives, providing the production volume and scale required by new domestic automotive suppliers to run their high fixed cost operations profitably.[10] If it becomes evident that suppliers are not re-shoring operations for key technologies, Nissan should consider establishing in-house operations or JVs with other OEMs to produce key supplier parts internally. On a more tactical level, to mitigate the impact of delayed deliveries due to border customs processes under WTO trade regulations, Nissan could increase its current safety stock (currently ½ day) reducing overall supply variability. In the mid-term and with more clarity on the final Brexit deal, Carlos Ghosn, should also consider a re-allocation of its European manufacturing capacity, potentially leveraging the manufacturing footprint of its alliance partner Renault in other continental European countries.

 Questions for further consideration:

  • How realistic is the ambition to `re-shore´ the UK domestic automotive supplier industry within 2-4 years?
  • Have there been precedents were companies successfully enforced government `insulation guarantees´ in the case of adversarial outcomes?

(Word count: 798)



[1]  Protts, J., “Supporting Industry Post-Brexit: Supply chains and the automotive industry,” CIVITAS: Institute for the Study of Civil Society (May 2017)

[2] Tighe, C., ”Nissan workers celebrate end of doom and gloom,” Financial Times (Oct. 28, 2016)

[3] Campbell, P., “More British parts being used in UK cars, says report,” Financial Times (Jun.19, 2017)

[4] Munchau, W., “A sensible Brexit deal is more probable than you think,” Financial Times (Mar. 19, 2017)

[5] Campbell, P. and P. Pooler, “The great car parts race,” Financial Times (Jul. 31, 2017)

[6] Campbell, P., “UK car industry fears effects of Brexit tariffs on supply chain,” Financial Times (Oct. 16, 2016)

[7] Campbell, P., “Nissan asks for Pounds 100m supplier fund to safeguard UK car industry,” Financial Times (Feb. 28, 2017)

[8] Campbell, P., “UK seeks to shield cars from post-Brexit tariffs,” Financial Times (Oct. 30, 2017)

[9] The Economist, “Parked: Industry in the north-east,” (Oct. 29, 2016)

[10] The Economist, “Made in Britain: Supply Chains,” (Oct 21, 2017)

[11] Renault Nissan, “Alliance Facts & Figures 2017” (Dec. 31, 2017)


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Student comments on Brexit in full swing – How Nissan UK is forced to `re-think´ its Pan-European automotive supply chain

  1. While it may be reasonable to consider that Nissan could re-shore manufacturing efforts to the UK, I would be concerned about two things. First, the complete manufacture and assembly of cars may require a labour force that may no longer exist in the UK. Similar to the United States, much of labour heavy jobs in the market are predominantly held by immigrants. And for the UK, this means employees from the EU who will have to now seek job-permits or citizenship to be able to remain a part of the UK working class. Given the current sensitivities of global immigration policies, will there be enough UK citizens to fill those roles in the labour heavy segments? If there are enough employees, this will mean thousands of new factory workers that require on-boarding and training into a highly streamlined system, given that their safety inventory is less than one day. And if Nissan and other UK manufacturers decide to rely on a robotic workforce, that will require a significant shift in the operations and style of manufacturing that perhaps currently exists.

    Second, I foresee that for certain components or subassemblies, the development of advanced manufacturing capabilities off-shore may be difficult to replicate in the short period of time without disrupting supply capabilities. As automotive manufacturers advance towards autonomous vehicles and artificial intelligence, Nissan will have to consider whether existing suppliers can be replicated domestically where certain technical capabilities do not exist. If import and regulatory fees become excessive on key component imports, suppliers may be able to squeeze car manufacturers knowing that alternatives don’t exist, placing Nissan under tighter margins.

    I think its smart that Nissan works closely with the government to leverage channels wherever possible. Unfortunately, labour and inevitable technology gaps within the UK automotive industry represent just one of many such industries, including consumer goods and healthcare. More worrisome will be if other non-UK owned companies decide entirely to leave the UK as skill-shortages and rising costs make the UK manufacturing unprofitable. If Nissan is unable to find a healthy solution to the on-shoring of its production, what will be the domino effect to other automotive manufacturers like Honda and Toyota, and what will be the larger impact on domestic manufacturing all together?

  2. One of the things I find particularly interesting about this development is the “assurance” by the UK government that Nissan would not face additional tariffs or costs related to Brexit in order to convince them to keep their new models in the Sunderland plant. On one hand, it sends a clear signal to Nissan that the UK government is determined to negotiate for open market trade access to the other European countries similar to how they are treated under the current EU membership. With that said, the UK government does not seem liable for actual compensation payments in the case that these tariffs are enacted, as competition laws would outlaw them [1]. I think it will be fascinating to see how things pan out if a deal is unable to be made and Nissan and/or the UK government is forced to eat the additional costs. I would imagine that over the next design cycle, Nissan would look at moving production elsewhere in Europe, yet with the Sunderland plant producing 30% of the UK’s auto exports as mentioned, the UK would likely try to find ways to incentivize them to stay. A similar parallel can be drawn in North America as discussions over NAFTA take place and US OEM’s are assessing the potential ramifications of walking away from the current deal. Companies like Ford manufacture several of their small cars with thin margins in Mexico, and added tariffs could make them uneconomical to produce.

    [1] Mason, R. “Nissan’s post-Brexit deal could lead to ‘colossal’ bills for taxpayer,” September 20, 2017, Retrieved from

  3. The cause for concern is twofold for Nissan’s UK production. First, the EU has significant control over the UK as Brexit unfolds, and the UK’s promised support of Nissan “has raised questions whether Britain may be breaching EU state-aid rules by handing the company selective support that could give it an unfair advantage over its rivals.” [1] Pushback from EU regulators could hamper the UK’s ability to make good on promises to Nissan, which would make the UK operation uneconomical given the historically low margins achieved there. Second, Nissan “has the option to shift work from its Sunderland plant to factories in continental Europe run by its global alliance partner Renault.” [2] However, according to Arnaud Deboeuf, a director of the Renault-Nissan Alliance, the Sunderland plant “is key for Nissan in Europe with the production of [the] Qashqai [SUV] and the production of Juke [a compact SUV], so in the short term there will be no impact”. [2] So, while in the short-term it appears it will be business as usual for Nissan, the idea that the company would expand production in the UK over the mid and long-term seems unlikely, particularly if the economics sour in any way.

    1. Drozdiak, N. (2016, Nov 07). EU examines U.K.’s brexit assurances to nissan; nissan’s decision has ensured the jobs of 7,000 people in the north of england. Wall Street Journal (Online) Retrieved from
    2. Campbell, P., & Inagaki, K. (2016, Jul 14). Brexit steers UK cars into unknown territory. Financial Times Retrieved from

  4. I was shocked to learn that WTO tariffs if Britain loses access to the common market could rise to 10% of the total price of vehicles, and that this would wipe out most if not all of the profitability in Nissan exports from Britain to the rest of Europe. However, I admit that I noticed comparatively very few non-European branded cars in London this summer, and I assume that many of those I did notice were foreign brands with UK manufacturing (like Nissan).

    Given this situation, Nissan’s decision to build its new Qashqai and X-Trail SUV in Britain seem to be quite a gamble. While the new car lines likely send a strong political message to Britain that Nissan is invested for the long-term and reminds British politicians and the general public of Nissan’s significant manufacturing presence there, a negative result from Brexit would leave Nissan with extensive investment in a relatively much smaller market. Further, it would seem to be especially difficult for Nissan to onshore an even more complicated supply chain for next-generation vehicles to Britain at the same time as it does so with its other automotive lines. Additionally, I wonder what value Prime Minister May’s promise has to mitigate any effects of Brexit on Nissan given her party’s somewhat more precarious position following the most recent election. If a Labor Prime Minister, or even a different Conservative Prime Minister, is in office when Brexit enters into effect, will the British government still look favorably on Nissan?

  5. Great illustration of the negative & disruptive consequences of Brexit. The tariff does seem concerning for the UK’s competitiveness in auto exports but it seems to me that there could be some mitigants; I’m curious if any of these came up in research:
    1. Wage cuts: to what extent will Nissan be able to pass the cost of the tariff on to workers in the form of lower wages?
    2. Exchange rate: if the lower GBP/EUR exchange rate persists, would that offset the impact of the tariff and leave Nissan roughly where they were before the Brexit vote?
    3. Tariff mitigation: could UK industry, including Nissan, influence the course of Brexit to accomplish mutually beneficial trade arrangements between the EU and Britain?

    I also wonder to what extent companies will take the growth of separatism into account when allocating production and designing supply chains. Nissan appears to be doubling down on UK manufacturing, but are other manufacturers moving to a more localized production model to hedge against future trade barriers?

  6. This is a fascinating example of how the government and regulation can have a major impact on your business, even when you feel like you’ve done everything right. We have seen plenty of cases in TOM this semester that have taught us about maximizing plant efficiency and maximizing profits. The success stories have been tied to being located near suppliers and customers, developing a strong culture where issues are raised and resolved quickly, and creating the most efficient assembly process. Even if you do all of those things perfectly well (which is hard to do), and you provide 30% of the UK’s automobile output, your model can still suddenly become unsustainable. I think the most jarring part of this story is that the implications were not driven necessarily by tightened regulation developed by a government agency focused on rational, fair and transparent practices. These implications arose largely due public opinion of an issue (Brexit) that may or may not have been fully understood by those going to the polls. Friends of mine in the UK voted for Brexit, admittedly without truly grasping some of the consequences. As a result, the best laid plans for a highly efficient operating model can become less than sufficient, and it’s hard to rationalize or predict.

    I don’t think that this story should lead us to believe that it’s not prudent to commit to a country or geography. It does make sense to diversify somewhat, but there are also significant benefits associated with commitment. Nissan has fast and predictable delivery from suppliers, they have strong relationships, and they have Theresa May advocating for their interests. It seems that just once in a while, something happens that’s out of your control and that doesn’t fall in your favor. Now Nissan has to wrestle with whether they double down and find solutions in the UK, or pivot and make their next commitment somewhere else.

  7. Nissan’s strategy to lean forward on the UK operations seem enormously risky to me and highlight the dangers of not sufficiently diversifying – although they cannot be blamed for not foreseeing what seems to be an emotional decision taken by the nation.

    I wonder if the Nissan CEO’s strategy to double-down on UK production is driven by the sunk cost fallacy. The decision of what to do next should be driven by the NPV moving forward which I believe is negative for the following reasons:
    1) The tariffs essentially squeeze out export profitability for a largely export-driven business. As labour supply in the UK decreases due to no influx of cheap labor from eastern Europe, labor costs might rise and squeeze profits further.
    2) Nissan’s operations and I suspect their profitability were tailored to JIT manufacturing – which essentially is at risk owing to the border customs – requiring increased inventory costs and/or rethinking manufacturing – both of which are big bets.
    3) Massive uncertainty around other implications of the 2-yr Brexit negotiations could lead to other unforeseen impacts. If Nissan continues to double-down on the UK in the short term, it might lose the opportunity to take the right long-term call after the negotiations are over. A massive economic downturn in the UK for example, might shrink the market, increase costs, drive away suppliers,etc.
    4) The government Nissan is negotiating with is a nascent and unproven entity – it is a massive bet to hinge the future of the company on vague assurances especially since the government seems to be unstable and might be replaced in the upcoming elections.

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