No-Deal Brexit Could Force Nissan To Write Off $740m

In the eventuality of the United Kingdom leaving the European Union without any deal which would be a worst case scenario, Japanese auto major Nissan Motor will stand to lose more than 80 billion yen or $737 million in asset write-downs, which would be a big blow to the auto maker which is already suffering from declining profits.

Nissan started its production line for its redesigned version of its popular Juke compact crossover in Northern England in its factory at Sunderland even as the UK and the EU have agreed to a Brexit deal for UK’s exit from the EU by October 31. The deal however is dependent on the UK parliament passing and adopting the deal.

Analysts believe that this new model could be a way for the Japanese company to bring its loss making European business into profits. However, the prospect of such a turnaround is dependent on whether the UK manages to achieve deal for Brexit.

In the eventuality of a no-deal Brexit, there would be a 10 per cent tariffs on all imports and  exports from the UK which would increase the effective cost of the Nissan vehicle made in the Britain by $2,700 assuming that all other conditions remains unchanged.

“Assuming Nissan doesn’t raise prices, cut costs or take other steps, around 90 billion yen could be wiped away from its operating profit,” said Koichi Sugimoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities.

The cost of a disorderly Brexit would be faced most by Nissan after British-headquartered peer Jaguar Land Rover, say some stock market watchers. Last year, an impairment charge of 3.1 billion pound or $3.9 billion was taken by JLR partly because of uncertainties in the UK business environment which also put pressure on the parent company of JLR – the Indian auto giant Tata Motors.

More than 400,000 vehicles a year, or nearly 10% of Nissan’s global output of Nissan is produced at its Sunderland factory which is one of the largest car making facilities that are owned and run by any international auto company in the UK.

In the year ended March 2019, a 16.7 billion yen operating loss was reported by Nissan’s European business and the company is counting on the Juke for turnaround in its fortunes in Europe. The sole assembler of the vehicle is the Sunderland factory that employs 6,000 people.

According to Nissan’s securities filings for last fiscal year, a book value of about 86.8 billion yen was attributed to the Sunderland factory after accounting for its equipment and other assets there. The company could be forced to write down all of part of the value of the Sunderland factory if it was forced to close down or scale back operations at the plant. Nissan could be forced to write off a value against the Sunderland factory in case of a prolonged Brexit disruption impacted the earnings outlook of the company in a negative manner.

The company has recently embarked on a restructuring process which includes plans for shut down or cutting of production lines in 14 factories across the world by March 2023 and therefore a write down at this stage because of Brexit issues.

(Adapted from Asia.Nikkei.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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