Sunderland wins Micra, but cost cuts to follow

Nissan UK managing director John Cushnaghan this week spelt out how the Sunderland plant will cut costs by 30% by 2003.

Nissan UK managing director John Cushnaghan this week spelt out how the Sunderland plant will cut costs by 30% by 2003, following its successful bid to win production of the next generation Micra.

Despite an announcement that the company planned to buy 65% of its components in euros, the position of major local suppliers looked assured because of the advantages of being close by. But lower-tier commodity suppliers could be hit.Last week it was announced that a £230m investment in the Sunderland plant will secure 1,300 jobs and create 500 more.

Key factors

‘Sunderland’s record of being such a constant achiever of all the targets it has been set, plus the commitment the plant team made to cost reduction, were key factors in the decision to source the Micra here,’ said Cushnaghan.

The Sunderland plant is the most efficient car factory outside Japan, but its profitability has been hit by the euro/sterling exchange rate. Renault’s Flins plant near Paris had been seen as a potential rival to build the new Micra, which will share its chassis with the next generation Clio.

Cushnaghan has committed the plant to reducing unit costs by 30% below 1999 figures, by 2003, the first full year of Micra production. This will be achieved in a number of ways, he said.

First, fixed costs will be dispersed over a higher production volume.

Second, reductions will be possible through purchasing synergies with Renault in costs of materials and commodities such as steel and paint, and reductions in total overheads through joint purchasing of anything from air tickets to hand tools and consumables such as abrasives.

Third, it will improve labour productivity through investment in new production and automation equipment. ‘We’re slightly under-invested, for example, in body production, where there is scope to use more robots,’ said Cushnaghan.

Asked about the expected effect on UK suppliers of buying more parts in euros to offset the exchange rate risk, Cushnaghan said that would have to be judged on a case-by-case basis.

But he added: ‘Sunderland suppliers are a special case: we’re looking at the cost at our gate, which gives them a significant advantage because their logistics route is short, very efficient and low cost.’ In addition, he said, the ‘vast majority’ of local suppliers have the additional advantage of being synchronous — linked into Nissan’s production system to supply parts such as seats in the right order to meet cars already coming down the production line.

Tom Hurst, principal economic development officer at Sunderland city council, said the currency issue was not a new problem for local suppliers.

‘Most suppliers in the city are global companies used to the global economy and know the exchange rate is a problem. Some companies in the area are sufficiently competitive to supply car makers in the eurozone such as VW and Fiat,’ he said.

Suppliers made aware

Hurst added that Cushnaghan had made Nissan’s suppliers aware that the exchange rate problem needed to be addressed, in a speech at an automotive conference last March.

One senior manager at a local supplier said: ‘Our contracts are negotiated on a global basis with Japan. Until now the price has been in sterling, but the price is a tough one anyway. We buy all our raw materials in Europe, and our processes have been benchmarked against our sister company in Japan, to make sure we’ve got the best.’

Sunderland’s annual output is projected to rise to 500,000 units annually, with a workforce of 5,000.