Government Assistance to Industry

Memorandum submitted by Nissan

Nissan welcomes the opportunity to respond to the Business, Innovation and Skills Select Committee inquiry into Government Assistance to Industry.

Nissan is a highly successful global automotive manufacturer with a significant presence in the UK. We are at the cutting edge of low carbon technologies and will be introducing the LEAF electric vehicle to the UK next year.

Nissan has a strong presence in the UK having established our Sunderland manufacturing plant in 1984. We also have our R&D European headquarters based in Cranfield in Bedfordshire as well as our European Design Centre in Paddington and our Sales and Marketing centre in Maple Cross. In total we employ 6000 people in the UK and many more through our supply chain network.

Nissan’s successful Qashqai product was designed in Paddington, developed in Cranfield and built in Sunderland. Over the past year Qashqai volumes reached over 250,000 [1] and since start of production we expect total Qashqai volumes to reach 877,198 by the end of this financial year [2] . In our view, its huge popularity should be considered as a great British successes story.

Automotive Assistance Programme

The Automotive Assistance Programme (AAP) was intended to enable new investment in order for the UK car industry to emerge from the economic crisis. Nissan welcomed this approach but was ultimately disappointed that the programme failed to meet its original intentions.

In our experience the loan guarantee offer was simply not competitive enough nor did it properly reflect Nissan’s business needs at that time. This is explained in more detail in the following paragraphs

Uncompetitive

Rather than offering competitive direct government financing of the industry as seen in other countries, the UK Government opted to provide the industry under the AAP a loan guarantee covering 75% up to 90% of the total financing. The loan guarantee provided under the programme was meant to provide security to creditors to allow automotive companies to borrow in an otherwise frozen credit market. Initially, in the midst of the crisis, this seemed a reasonable offer.

However, as the worst of the crisis passed, and banks and financial institution received the first wave of support to begin lending, it became progressively easier for automotive industry to secure credit on its own. So when the industry was actually ready to use the loan guarantee facility, companies could already secure credit themselves on the open market.

The use of the loan guarantee came with a cost. To invoke the guarantee, the AAP charged an additional fee or interest rate to cover the cost and risk of the company to default. Under the scheme, Nissan would then still be liable to the Government in case of a default. The level of the fee was determined by the rate charged by high street banks, some of which had just been taken into public ownership. This reflected the full default risk of the company on top of what would be required to secure credit under the backing of Government. Only after intense negotiation and demonstration to Government that Nissan’s risk was at a level below what was charged in the open market was a reassessment made on the guarantee fee (and only in conjunction with a loan only covering 50% of Nissan’s borrowing needs).

In effect, securing credit for Nissan under the AAP brought no preferential access to credit, no increased security for the lender, nor competitive borrowing rates. It only brought additional cost. In our view, under this scheme, the fee for the guarantee should have been zero which would have put the AAP more in line with direct financing offered by other governments at the time. As a result the additional charges added further cost to an already uncompetitive offering.

Reflecting the Needs of Business

The AAP was largely inflexible as it would only offer a subsidised rate for the guarantee for a maximum of two years. In Nissan’s view it would have been much more effective if the scheme had provided loan guarantee based on the life of the project giving business far greater stability and certainty.

Furthermore, we believe that the AAP scheme could have been broader in scope. The scheme should have considered green projects that considered infrastructure and R&D technology. The scheme could have also expanded on the EIB criteria to provide guarantees for both R&D and manufacturing that had green qualifications.

Ultimately, Nissan was able to secure finance in the open market and with support of the global Nissan business. We were able to do this at lower costs and with greater flexibility to suit our business needs.

The Effectiveness of BIS

Nissan has an established relationship with BIS via the Automotive Unit. Nissan views the Automotive Unit a vital component within Government that is able to join up the complex areas of the industry. The Automotive Unit provides a vital link between business and the successful Automotive Council which has also enabled better dialogue between industry and Government.

Grant for Business Investment (GBI)

Nissan is a successful and profitable global company which does not need support from governments to build its cars. The Sunderland plant is one of the most productive car plants in Europe and exports around 80% of its annual volume to over 45 world markets.

Nissan competes internally within the Renault-Nissan Alliance for new manufacturing projects. Sunderland competes with other plants as widespread as Mexico, Japan and Spain. Production sites based in lower cost countries are maintaining their competitiveness with lower labour costs. Higher cost countries, including Spain and Portugal, are also receiving strong support from their governments to keep their vehicle manufacturing industry inside their borders.

The Sunderland plant has a proven track record for high productivity and quality. However, external factors also play a significant role in attracting new business to the plant. This is why Nissan views the Grant for Business Investment (GBI) as a vital factor in bringing new investment and highly-skilled jobs into North East England.

Nissan has received support via GBI for the production of the Nissan LEAF zero-emission electric vehicle and the advance lithium-ion battery plant at Sunderland. The total investment for these projects is expected to reach £350m of which £310m will be invested in the North East and is therefore eligible for GBI support. The UK Government’s GBI offer represents £20.7m or 6.7% of expected eligible investment. In return the UK will become a leader on low carbon manufacturing and will be only the second country (along with the US) outside of Japan to build the Nissan LEAF, the world’s first mass-produced zero-emission passenger car.

Wide reaching benefits to the UK economy

Spin-off businesses and low carbon skills development projects have developed in the North East as a response to the Nissan LEAF and battery plant being built in Sunderland. Nissan estimates that over 1000 jobs will be safeguarded and a further 600 will be created in the supply chain as a result of the investment made by the UK in bringing the LEAF and battery plant to Sunderland.

Such investment within the UK regions via GBI will be more crucial than ever if the UK is serious about rebalancing the economy. Relatively modest investment through GBI has the capacity to attract inward investment which in turn create jobs in high skilled manufacturing and attract further inward investment into the economy. In short it can be the catalyst to create in a virtuous circle of investment into the UK.

Foreign governments are competing to maintain their manufacturing bases that have a capacity to export their way out of challenging economic times. The UK has a clear choice of whether it chooses to fight for new business, new jobs, and rebalance the economy or allow the opportunity of this business to go elsewhere.

As the UK arm of Nissan, we hope that the Coalition Government seizes this opportunity with both hands.

Facts about Nissan in the UK :

· Nissan’s Sunderland Plant started production in 1986

· Total investment in plant to date: 2.7 billion GBP

· Total volume since start of production: 5.7 million units

· Total 2009 volume: 338,150 units

· Current workforce: 4,900

· UK’s largest car producer and exporter for the past 12 years

· Produced a third of all cars built in the UK in 2009

· Juke, Note, Qashqai and Qashqai+2 are all produced at Sunderland Plant

· The UK is Nissan’s biggest market in Europe

· Over 80 per cent of production is exported to 45 markets worldwide

· Sunderland Plant won a Queen's Award for Export, the fourth received since the plant opened in 1986

· Advanced lithium-ion battery plant under construction at Sunderland, will have a production capacity of 60,000 units a year and will start manufacturing batteries in 2012 for both Nissan and its Alliance partner Renault.

· Nissan’s LEAF Electric Vehicle will be manufactured at Sunderland Plant from early 2013 with an initial annual production capacity of around 50,000 units

· LEAF together with Sunderland battery plant production represents more than a 420 million GBP investment in zero emission mobility, supported by a 20.7 million GBP Grant for Business Investment (GBI) from the UK Government and a proposed finance package from the European Investment Bank of up to 220 million euros (180 million GBP).

· Nissan’s European Design Centre is located in Paddington, London and employs around 50 people

· Nissan’s European Technical Centre is based in Cranfield, Bedfordshire and employs around 750 people

September 2010