Nissan Could Face $620 Million Brexit Toll, Senior VP Says

(Bloomberg) -- Nissan Motor Co. could face a 500 million-pound ($620 million) hit to profit should the U.K. fall back on World Trade Organization rules after two years of divorce negotiations with the European Union, the first time the automaker has put an estimate on Brexit-related costs.

Speaking to lawmakers in the House of Commons in London Tuesday, Nissan Senior Vice President Colin Lawther said 10 percent tariffs on exports of the automaker's Qashqai SUV, built in Sunderland, northeast England, and 2.5 to 4.5 percent tariffs on parts, would be “pretty disastrous” as the company would have to absorb some of the impact.

“You're talking a 400, 500, 600 million impact,” he said. This year the company expects to produce 320,000 Qashqais in the U.K., Lawther added, 60 percent of which will be exported to other EU member states.

Nissan pledged in October to expand production at the Sunderland plant, building the next generation of Qashqai and X-Trail sport utility vehicles at the site. The commitment followed a letter of reassurance from Business Secretary Greg Clark, in which he'd made four key pledges, including that Britain would seek to maintain tariff-free access to the EU during divorce talks. Nissan is the only automaker that has received such a letter.

Despite saying the factory could still be profitable under WTO rules, through efficiency savings and potential “on-shoring” of suppliers, the company, based in Yokohama, Japan, may “adjust” its British business depending on the outcome of EU talks, Lawther said.

The assurances to Nissan in October might not extend beyond the next version of the company's SUVs, a person familiar with the situation has said. Because auto product cycles typically run for about five to seven years, this could mean the company would have to reassess the attractiveness of the U.K. as a manufacturing base after it leaves the EU.

Nissan shares were unchanged as of the 11:30 a.m. break in Tokyo, while the benchmark Topix index gained 0.4 percent.

The automaker's Sunderland plant employs more than 7,000 people and supports another 28,000 supplier jobs.

In response to Lawther's comments, Prime Minister Theresa May's spokesman Greg Swift said the government is going into negotiations with a “spirit of optimism” and is “ambitious about the nature of the free-trade deal we can strike with the EU.”

“What we want is to secure a deal that allows there to be an environment for Nissan and other companies in the automotive sector to flourish,” he told reporters.

--With assistance from Thomas Penny Ma Jie and Masatsugu Horie

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Chua Kong Ho, Dave McCombs