Nissan needs the pound, not the Euro

It was music to my ears to hear Nissan’s revision today of their position that if the UK did not join the Euro they would invest elsewhere. They made a clear commitment to invest in Sunderland to produce their next new European vehicle there.
When Nissan made that foolish comment it was damaging to those of us who were battling to keep the pound, and welcome ammunition to Blair/Mandelson trying to find a way to move the debate in their favour to abolish our currency. I was surprised that such a good manufacturing company should allow itself to make such a strong comment on such a politically sensitive issue, and had to devote time to explaining why it was unlikely to be true.
As I pointed out at the time, business people make decisions on where to place factories and to make new investments on a range of factors that determine whether the investment is likely to be profitable or not, and whether it is likely to offer more sustained profit on a reliable basis than in some other location. Proximity to market, access to good components and raw materials, the ability to recruit and retain a good workforce, tax rates and the regulatory background are all important issues. It was never likely that a country’s choice of currency was going to be the one decisive factor.
The irony today is that one of the important influences on persuading Nissan to base their next new European car production in Sunderland will be the decline in sterling against the Euro in recent months, making the UK more competitive on price than Euroland. All of Nissan’s future cashflow and profit figures on their new car will look better because sterling costs are lower than inflated Euro costs. It would be a different story today if Nissan had set up in Spain or Italy, where they would now be struggling to control inflationary costs against the background of a rising currency making them uncompetitive.
Nissan has done a great job in recruiting and training people in the North East to become one of the most productive auto workforces in the world. They make good products to a sensible budget and of good quality. The UK should be proud of their achievement, and they should be pleased with what their workforce has done. They should also now welcome the wise decision of the British people to keep the pound, and understand that a future government will be pledged to keeping the pound as a matter of principle.
It is the British government that needs to do more to keep and attract industrial investment to this country, by regulating less and offering a more competitive tax package.

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4 Comments

  1. Acorn
    Posted July 22, 2008 at 9:41 am | Permalink

    Now that the Unions have got, soon to be Old New Labour, by the short and curlies, I expect Nissan may come to regret their change of stance!

    BTW. Were the 717 amendments to the Housing and Regeneration Bill, a new record for our increasingly dysfunctional legislation drafting machinery?

    The good bit yesterday was the Statute Law (Repeals) Bill. It may have repealed only 260 whole statutes and 68 partial statutes; but it is a start! Pity we only have one of these Bills every two and a half years on average.

  2. Arthur
    Posted July 22, 2008 at 11:30 am | Permalink

    I fully endorse what you say here and it is, indeed, a good illustration of how floating exchange rates act as a stabiliser in the economy, but I am not sure about the particular language you use:

    "the decline in sterling against the Euro in recent months, making the UK more competitive on price than Euroland."

    Can this not be interpreted to mean that a decline in sterling is a good in its own right and indicative of a strong economy? I know you qualify the statement with the words "on price", but I always took a declining currency as an indication of weakness in an economy and the decline itself as the currency market's attempt to acknowledge this weakness. The fact that it then goes some way to correct imbalances is a welcome by-product but still an indication of weakness.

    Is the pound not in decline because of growing national debt, private debt, poor credit, poor regulation, high tax, poor education etc? And does this decline not simply reflect the world's acknowledgement that the pound and, therefore, the UK is not as valuable as we thought it was.

    Not being an economist, I may have got my wires crossed, but the best way to do well in business is, as you suggest in your final paragraph, not by the veil of a declining currency, which also tends to import inflation, but the inherent competitiveness of our economy: low costs, good and limited regulation, excellent legal system and an educated and skilled workforce.

    I would hate for people to start thinking it the solution to all our problems to continually run down our currency in the mistaken belief that it is a signal of economic virility rather than the manifestation of weakness it really is.

    Reply: Yes, you are right that devaluation reflects weaknesses in the economy. However, it does mean our exports are cheaper.

  3. David Eyles
    Posted July 22, 2008 at 12:52 pm | Permalink

    About three years ago, we bought a new tractor for the farm. The old one was only four years old but was built in Eastern Europe and was horribly unreliable from new. My choice was a McCormick, built in Doncaster with a Perkins diesel. Apart from the specification which suited my requirements was the fact that it was built in this country by my own countrymen. Reliability was an absolute must and my view was that the UK has long since learnt to look after it's customers with good service arrangements and so on.

    Sadly, last year, the parent company of McCormick decided to close the Doncaster factory and move the manufacturing assets to Italy. A couple of years before, Massey Ferguson moved its UK facilities to France. I shall not even speak of the Rover debacle.

    Whilst there is a rational free-trade-economics part of me which says that it does not really matter where my tractor or anything else is manufactured, there is another part of me that rebels against this doctrine. And it is not just the patriotic part of my soul that mourns the loss of our manufacturing base.

    Every time that a UK based company is bought by foreign owners, the profits slip from the UK to abroad. Every time a company is stripped of its assets and the whole manufacture is transfered overseas, we lose profits, jobs and the benefit of turnover trickled down through smaller manufacturers locally. Furthermore, manufacture abroad is not a guarantee of quality or reliability. How many times do we buy household goods only to find that it has fallen to bits just after the guarantee has run out? China has a lot to answer for in this respect. We continue to buy shoddy goods on price and wind up paying more in the end and losing the prosperity of employing our own because of it. We pay many times over for our rampant consumerism that is fuelled by the disposal culture.

    Whilst I too am pleased that Nissan have made this decision, I would like to know just how a Conservative government would encourage the UK manufaturing industry to flourish and stay here, without being protectionist. I suggest that it will take a lot more than "de-regulation" to shift the balance permanently in our favour.

  4. mikestallard
    Posted July 22, 2008 at 6:50 pm | Permalink

    Three really hard questions:
    1. We have always had it in the past – Industrial Revolution – successful rule throughout a huge, efficiently run Empire – Agricultural Revolution – exploitation of our huge reserves – incorruptible Civil Service – self belief. Why have these, modestly, been forgotten?
    2. Is it all still there? No? Well, then, is it all the fault of the ghastly government or is this ghastly government but a symbol of our (rapid) decline? If it is – then it doesn't matter who is in control.
    3. Will the vast demographic shift that is going on at the moment in this country derail our English genius? Does that genius rest on our national characteristic (nature) or is it transferrable through our environment (nurture)? And, more to the point, are we actually transmitting anything much to most people?

    At least Nissan is being positive in a time of crisis in our Island story.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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