Nissan scraps plan to build new X-Trail model in Britain

By Costas Pitas

LONDON (Reuters) - Carmaker Nissan has scrapped plans to build its new X-Trail SUV in Britain and will produce it solely in Japan, warning two months before Brexit that uncertainty over Britain's departure was making it harder to plan for the future.

Falling demand for diesel cars in Europe has forced Nissan to invest in other technologies and save costs. It cut hundreds of jobs at its Sunderland factory in the north of England, Britain's biggest car plant, last year as output slumped 11 percent, hit by levies and crackdowns on diesel.

"Nissan has increased its investments in new powertrains and technology for its future European vehicles," the firm said. "Therefore the company has decided to optimise its investments in Europe by consolidating X-Trail production in Kyushu."

"While we have taken this decision for business reasons, the continued uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future," said Nissan Europe Chairman Gianluca de Ficchy.

Britain's business minister Greg Clark said the announcement was a "blow to the sector and the region."

Britain is due to leave the European Union on March 29. Lawmakers last month rejected Prime Minister Theresa May's Brexit deal, heightening fears of a disorderly no-deal Brexit and of new trade barriers. May said on Sunday she would seek a "pragmatic solution".

In a letter to workers, de Ficchy said Nissan has a task force that reports to him and is "considering all of the possible scenarios and the potential impact on the business."

Nissan builds roughly 30 percent of the country's 1.52 million cars and exports the vast majority to the continent

It said four months after Britain voted to leave the EU in June 2016 that it would manufacture the new X-Trail in Britain - a major vote of confidence in the country and May, shortly after she took office.

A source told Reuters at the time that Nissan received a letter from the government promising extra support in the event that Brexit hit the competitiveness of the Sunderland plant.

According to the Sunday Times newspaper, ministers are now considering whether to withdraw a 60 million pounds ($78.46 million) package of support for the company.

"This kind of support package to help in areas such as training and skills is typical across the industry. Clearly we will be reviewing it in the light of this decision," a government source told the newspaper.

The new X-Trail could have created hundreds of jobs.

The carmaker's planned investment in the next-generation Juke and Qashqai models, which was also announced in 2016, was unaffected, Nissan said on Sunday.

The announcement came just two days after an EU-Japan free trade agreement kicked in, which includes the European Union's commitment to removing tariffs of 10 percent on imported Japanese cars.

Many Japanese companies had long seen Britain as the gateway to Europe, after being encouraged to open factories in the country by former prime minister Margaret Thatcher. Brexit has thrown that into doubt, prompting consternation in Tokyo.

Sunday's announcement also came as the carmaker continues to deal with the fallout from the arrest of its former boss Carlos Ghosn, which has clouded the outlook for the automaking alliance between Nissan, Renault and Mitsubishi.

($1 = 0.7647 pounds)

(Reporting by Costas Pitas, additional reporting by Kanishka Singh in Bengaluru; Editing by Janet Lawrence, Alexandra Hudson and Daniel Wallis)