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Automobiles

Nissan at risk of $740m body blow from no-deal Brexit

EU tariff threat looms over automaker's Sunderland plant in UK

Nissan's plant in Sunderland, England, produces 10% of the company's annual global volume.   © Reuters

TOKYO -- Nissan Motor stands to sustain over 80 billion yen ($737 million) in asset write-downs in a worst case scenario if the U.K. withdraws from the European Union with no deal, a further blow to the automaker's sagging profits.

As British and EU negotiators this week raced the clock to reach an agreement by an Oct. 31 deadline, Nissan began production of redesigned version of its popular Juke compact crossover at the Sunderland plant in northern England.

The model offers a chance at recovery for the Japanese car company's money-losing European operations. But any hopes of a turnaround must contend with the prospect of a no-deal Brexit.

In that scenario, 10% tariffs would be slapped on British imports and exports, which would raise the cost burden on each U.K.-made Nissan vehicle by about $2,700, should other factors remain constant.

"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.

Some stock market watchers say Nissan faces the next-largest Brexit risk after British-headquartered peer Jaguar Land Rover. JLR took a 3.1 billion pound ($3.9 billion) impairment charge last year, in part due to uncertainties in the U.K. business environment, weighing down the earnings of Indian parent Tata Motors.

Sunderland -- one of the biggest car factories run by any international automaker in the U.K. -- produces over 400,000 vehicles a year, or nearly 10% of Nissan's global output. Almost 300,000 are exported in the EU.

Nissan is counting on the Juke to turn around its European business, which logged a 16.7 billion yen operating loss in the year ended March. Sunderland, which employs 6,000 people, is the sole assembler of the vehicle.

The plant, including equipment and other assets, carries a book value of about 86.8 billion yen, according to Nissan's securities filings for last fiscal year. All or part of this value might have to be written down if the plant were closed or scaled back, or if its earnings outlook were to dim as a result of a prolonged Brexit disruption.

Nissan could ill afford to bear that cost as it undergoes a painful restructuring that will shut down or cut production lines in 14 sites around the globe by March 2023.

Nissan decided in February to make the redesigned X-Trail, another popular sport utility vehicle, at a plant in Japan's Fukuoka Prefecture.

Japan's Honda Motor decided to close its British assembly plant, and America's Ford Motor will close an engine plant in the U.K. next year. BMW is partially relocating capacity back home to Germany.

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