When the people of the U.K. voted on June 23, 2016 in favor of leaving the European Union, they set into motion a wave of uncertainty about the economic future of the nation. Due to the global supply chains that permeate the industry, Brexit immediately became a major concern to all automakers with ties to the U.K., including Nissan Motor Company.
Experts estimate that less than half of the approximately 5,000 components in a British-made car are manufactured domestically, and some of the individual parts cross U.K. borders dozens of times . With the withdrawal of the U.K. from the EU customs union, these imported parts could be slapped with import tariffs at multiple steps along their journey, dramatically affecting the final costs to OEMs . Nissan will also need to grapple with the possibility of further decreased vehicle profit margins due to increased tariffs on the 55% of U.K.-produced vehicles exported to Europe . However, the potential impact of new tariffs will remain unclear until a post-Brexit trade deal is negotiated between the U.K. and the EU. This future uncertainty has led to somewhat more immediate financial implications for the company; Nissan shares fell more than 12% in the days following the Brexit referendum .
Another possible outcome of Brexit negotiations is the establishment of a tariffless free trade agreement between the U.K. and the EU . While this would reduce the negative impact of import tariffs, free trade agreements commonly require that a majority of the components in the vehicle originate in the exporting country. In other words, more than 50% of a U.K.-built vehicle’s components will need to be manufactured in the U.K. in order to be eligible for tariff-free export to the EU under a hypothetical future free trade agreement . For Nissan to meet this requirement, the company will need to reduce the foreign component makeup of its vehicles by almost half, from its current level of 85% . If the company is not able to achieve this, it could face a 10% tariff on all vehicles imported into the EU .
To this end, Nissan management has been proactive in lobbying the British government for both a beneficial future trade agreement and financial support for industry-wide changes that will be required regardless of which deal is reached . Colin Lawther, Nissan’s manufacturing and supply chain head for the European region, met with members of the U.K. parliament in February 2017 and issued a “strong request” that the nation remain in the EU customs union in order to avoid tariffs or free trade agreement restrictions .
Lawther also requested that the U.K. government set up a £100 million fund to help the automotive industry cope with the necessary supply chain changes . In particular, Nissan has asked for government support in persuading component manufacturers to relocate to the U.K. While the government has yet to respond to this monetary request, Nissan partnered with a U.K. trade minister in convening group of key suppliers this year at the company’s British headquarters in order to make a pitch for relocation .
So far the results of Nissan’s efforts have been mixed, and the company’s more medium-term strategy has shifted to waiting until a formal Brexit deal has been reached. In the initial months post-referendum, the automaker committed to building two new vehicle programs at its U.K. plant after receiving assurances from the government that the company would be protected from negative trade implications stemming from Brexit . However, more recent statements by Nissan’s CEO suggest that the company will reevaluate that pledge once the final details of the Brexit deal are known .
Moving forward, Nissan should continue to reassess its post-Brexit strategy as more information becomes available. However, since the company has long-term investment decisions that will need to be made soon, management should continue to work with the U.K. government and encourage a speedy resolution of Brexit negotiations. A positive outcome for the company would be a post-Brexit trade deal that establishes tariffless free trade with the EU, but one that differs from most free trade agreements in that it counts European and British components as interchangeable for origin purposes. Through a close relationship with the British government, Nissan can attempt to influence trade agreements in a way that enables the nation’s automotive industry to stay competitive.
What will be the final terms of a Brexit agreement between the U.K. and the EU? Will they include trade terms, or will no trade deal be reached? How will these potential trade terms treat the import and export of automotive components and finished vehicles? And, perhaps most importantly, will Nissan be able to hold off on any significant U.K. investment until a Brexit deal is reached?
Word Count: 789
 Michael Pooler, “Brexit adds to challenges facing car parts suppliers,” Financial Times, September 14, 2017, ABI/INFORM via ProQuest, accessed November 2017.
 Lisa O’Carroll, “Brexit means taxpayers need to support supply chain, says Nissan,” Guardian, February 28, 2017, [https://www.theguardian.com/business/2017/feb/28/brexit-taxpayers-support-supply-chain-nissan-sunderland-car-auto], accessed November 2017.
 Peter Campbell and Michael Pooler, “Brexit triggers a great car parts race for UK auto industry,” July 30, 2017, ABI/INFORM via ProQuest, accessed November 2017.
 Megumi Fujikawa, “Brexit Vote Rattles Japanese Auto Makers; Nissan, Toyota and Honda produce about half of all vehicles made in the U.K. each year,” Wall Street Journal, June 27, 2016, ABI/INFORM via ProQuest, accessed November 2017.
 Peter Campbell, “Vauxhaull decision looms as key moment for Brexit,” Financial Times, August 27, 2017, ABI/INFORM via ProQuest, accessed November 2017.
 Natalia Drozdiak, “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, November 7, 2016, ABI/INFORM via ProQuest, accessed November 2017.
 Joshua Posaner, “Nissan to review UK investment decision based on Brexit deal: CEO,” Politico, January 20, 2017, [https://www.politico.eu/article/nissan-to-review-uk-investment-decision-based-on-brexit-deal-ceo/], accessed November 2017.