Hamish McRae: Nissan and Toyota choose UK for production of new hybrid cars

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So Toyota is to start building a hybrid version of its Auris here in the UK, and it looks very much as if Nissan will announce a similar plan to build a hybrid at its plant in Sunderland. According to reports, Nissan plans to make the factory Europe's biggest hybrid-electric car plant, with production starting in 2011.

This is really encouraging. It has been a bad week for Tata, which is ending production of the X-Type Jaguar earlier than planned and which is under pressure at Land-Rover. So it is a bit of a relief that two of the three Japanese makers are making progress. The bigger question, though, is why they should have chosen the UK over other possible locations.

There are a number of natural reasons, including the fact that the UK plants are long-established, and flexible UK labour laws and workforces make British plants inherently attractive vis-à-vis Continental European ones. Part of the answer, too, must be that they are achieving very high productivity, with the Sunderland plant being the most productive in Europe.

But I wonder whether part of it is the fact that we still have the pound. The strong euro has been devastating for the profitability of Continental plants. While it is perfectly possible the pound will climb back at some stage, the lesson will not be missed that, when an economy comes under pressure, a flexible currency can absorb strain. None of us has access to the car companies' management accounts, but I suspect at these exchange rates the UK is very competitive.

That leads to a wider issue: to what extent can a revival of manufacturing take up some of the slack left by a decline in financial and other business services? It is an attractive notion, but here I think you have to be careful. You can't just crank up any sector by magic, even if there were an underlying economic case, and the long-term trend of manufacturing as an economic activity in all developed countries remains down. I think it is much more likely that growth will come from the other service industries gradually reviving – and eventually financial services coming back. But, meanwhile, the car industry news is very welcome.

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