May's Nissan deal opens floodgates as rivals seek Brexit reassurance

October 28, 2016 12:29 PM EDT

A Nissan logo is seen on a car at a car dealership in Sunderland, Britain June 29, 2016. REUTERS/Andrew Yates/Files


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By Kate Holton and Costas Pitas

LONDON (Reuters) - Prime Minister Theresa May's deal to keep Nissan <7201.T> investing in Britain opened the floodgates on Friday to demands from rival car companies chasing their own assurances from the government that they won't be hurt by Brexit.

Britain's biggest car maker Jaguar Land Rover and its biggest engine maker Ford (NYSE: F) welcomed the news that the Japanese group would build two new models in the northeastern English city of Sunderland. Both said they too needed to avoid the risk of being hit with tariffs on trade with the European Union.

While the exact nature of the deal remains unknown, its announcement raised the prospect that Britain might be adopting an interventionist approach to placate exporters as it prepares to leave the world's biggest trading bloc - a stark change for a country known for its hands-off approach to business.

"In isolation this wouldn't be a big issue, but this could be the start of a slippery slope where the government gets much more drawn into individual deals and negotiations than historically they have," Andrew Sentance, a former Bank of England policymaker and adviser to PwC, said.

Dismissive of the more interventionist approaches of countries such as France and Germany, Britain became a leading destination for foreign investment by coupling a flexible labor market and low taxes with little state involvement in business.

But the shock vote in June to leave the EU has heralded the biggest change in the way corporate Britain is run for at least a generation.

A source told Reuters on Thursday the British government promised extra support to Nissan in a written assurance that Brexit would not hit the competitiveness of the Sunderland plant, which exports 55 percent of its cars to Europe.

The government refused to go into details but said there had been no "sweetheart deal". Last month Nissan's CEO Carlos Ghosn warned that he would need a guarantee of compensation to offset any tariffs. Following a meeting with May earlier this month, Ghosn expressed confidence that her government would ensure Britain remained a competitive place to do business.

News of the deal prompted an immediate reaction from rivals, who also raised the question of recruiting foreign staff if the government curbs immigration, as it has promised.

"We are talking to government at every level and asking for a tariff-free trading environment, access to talent and the same legislative framework we have now," Jaguar Land Rover said. "We want a level playing field."

While Nissan's Sunderland factory made nearly one in three of Britain's 1.6 million cars last year, Indian-owned Jaguar Land Rover produces more vehicles overall at several sites.

Other exporters were keeping a close eye on the Nissan developments, with the boss of Airbus UK saying the agreement showed the aerospace and defense sectors needed to work together.

One leading London banker, who declined to be named, said May appeared to be "playing to the home crowd" by prioritizing the auto industry over financial services.

WINNERS AND LOSERS

U.S. automaker Ford (NYSE: F) said it needed to sell its British-made engines into Europe without tariffs and that it was looking for similar reassurances from the government.

"I don't think the government will be picking winners and losers in our industry," Jim Farley, vice president for Europe, Middle East & Africa, told Reuters. "I would be very surprised if the UK government treats different companies differently."

Britain's big carmakers are nearly all foreign-owned and ship more than half of their exports to the other 27 countries of the EU, making the industry's future one of the big question marks hanging over Britain's plan to quit the bloc.

Late Prime Minister Margaret Thatcher lured Nissan to open the Sunderland plant in 1986, beginning a recovery in British car-making that had nearly collapsed in the 1970s.

Colin Lawther, a senior vice president at Nissan, said Brexit had posed a "big hurdle" for the car industry. "The UK government has been very good at working with us over the last few months to remove the uncertainty as much as they possibly can," he told reporters.

Like most parts of England's industrial north, Sunderland voted strongly in favor of Brexit on June 23.

The deal led to speculation as to what the government had offered Nissan to persuade it to make the next generation of its Qashqai and X-Trail SUVs at Britain's largest car plant.

Vince Cable, a former business minister who helped persuade General Motors to keep its north of England plant open in 2012, said he believed the Nissan announcement was a sign that the government would push for a "soft Brexit" deal with the EU that avoided the imposition of tariffs altogether.

"One of the key factors in keeping General Motors here was the confidence they had that we would stay within the European single market and the customs union," he told Reuters.

Countries such as Turkey are part of the EU customs union without being member states, enabling them to trade freely with the bloc.

"I think (the government) almost certainly made it clear that British negotiating objectives will be to remain within the customs union," Cable said. "I can't see how anything other than a customs union arrangement would satisfy the car industry."

(Additional reporting by Helen Reid in London and Laurence Frost in Paris; editing by David Stamp)



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