Tony Blair was warned last night that the strength of the pound will jeopardise further motor industry investment in the UK and force car makers to switch more component orders abroad.
The warning, delivered by a delegation of car industry executives during a one-hour meeting in Downing Street, will put further pressure on the Government to act over exchange rates.
The delegation was led by Sir Ian Gibson, senior vice-president of Nissan and president of the Society of Motor Manufacturers and Traders, and Christopher MacGowan, its chief executive.
They told the Prime Minister that it was virtually impossible now to export cars profitably from the UK because of the strength of sterling and the cost of UK-sourced components. Mr Blair was also told that if the high exchange rate persisted overseas car makers would find it more difficult to justify further investment in the UK.
The three Japanese car makers, Nissan, Toyota and Honda, have invested more than £3bn in the UK and Nissan and Toyota, in particular, are heavily dependent on exports.
Nissan currently spends £800m a year with UK suppliers, out of a total purchasing bill of £1.3bn, and 135 of its 204 European component suppliers are British.
A spokesman for Nissan said: "The basic problem is that in order to compete we need to be able to build cars more cheaply but we cannot do that with the prices that UK component suppliers charge."
He added that the appreciation of the pound since 1996 had taken 30 per cent out of Nissan's margins. This has turned it from a £77m profit in 1997 to losses in the current year, even though production from the company's Sunderland plant is due to reach a record of 334,000.
The meeting came against the backdrop of a report from the Competition Commission calling for reductions of 10-12 per cent in UK new car prices - worth £1,100 off the average model - at a total cost to the industry of £1bn.
There are also growing fears that Ford will follow BMW's example at Rover and pull out of car manufacturing at Dagenham. Ford was not directly represented at the meeting, but Vauxhall, the other UK volume car maker, sent a senior representative.Reuse content