GM Troubles Repeat British Auto Industry Mistakes of the 1970s

GM Troubles Repeat British Auto Industry Mistakes of the 1970s

Op-ed in The Washington Examiner
May 04, 2009
Originally published in Washington Examiner Opinion Zone

General Motors is now co-owned by the American taxpayer and labor
unions. As a Briton, I find this development astonishing. It repeats
the mistakes of the 1970s Labor government, which essentially killed
off the British auto industry. America should avoid the same mistake.

By
the late 1960s, most of Britain’s famous motor industry names—including
Rover, Austin, Morris, Triumph and Jaguar—had consolidated into a “Big
Two”: British Motor Holdings (BMH) and Leyland Motor Corporation (LMC).
LMC was profitable; BMH was not. BMH
was trying to sell cars that reflected the tastes of a bygone era—its
Morris Minor, for example, had been designed in 1948. Foreign-owned
companies were making cars in the UK that were more to the buying
public’s taste, like the famous Ford Cortina, which gave much better
performance and fuel economy. Sound familiar?

In 1968, the Labor government encouraged the merger of BMH and LMC
into British Leyland Motor Company (BL). This company maintained
production of a variety of brands that competed against each other, and
engaged in a research and development crash program to develop new cars
that people would actually want to buy. The results were the Morris
Marina, a car that my family happily bought and even more happily
discarded, and the Austin Allegro. Both models sold strongly, on the
basis that they were British (huzzah!), but in the end their shoddy
design destroyed the reputation of British automaking. Caveat inventor!

Meanwhile,
the new company was plagued by terrible labor relations, with a
powerful union continuously demanding better working conditions while
providing worse service. For example, a former senior officer of the
Parachute Regiment, who visited an auto assembly plant as an adviser on
leadership, told me that after he saw a notice that said the “tea
break” would be scrapped to improve productivity, he and asked a worker
how he reacted. The worker replied that he used his drill to add extra
holes to the car door to weaken the construction and reducing the car’s
working life. The worker believed that this would harm management, but
not him. The company became unmanageable and was on the verge of
bankruptcy by 1975.

The government felt that it could not be
seen to allow the country’s major indigenous carmaker to fail, with the
possible result of adding a million people to the unemployment line
during a recession. The Ryder Report, authored by leading investment
bankers and a former CEO of Ford UK, recommended government investment of over £1 billion—about 1.2 percent of GDP
at the time—to save the company, with the government taking an
ownership share. This meant an effective nationalization of BL.
Initially, the government’s share was overseen by a “car czar,” but in
1977 the government appointed Sir Michael Edwardes as CEO of British Leyland.

Over
the next few years, the news was dominated by the attempts by Sir
Michael to reach agreement with the unions over restructuring as he
sought to assert “management’s right to manage.” He knew that he had to
do three things to turn the company around: produce cars that people
wanted to buy, increase productivity, and close redundant factories.
The unions were very unhappy with the latter two aspects of his
strategy. Strike after strike followed.

Eventually, Sir
Michael obtained government approval for the closure of the factory at
Speke, Merseyside. Thousands of jobs were lost and the new Triumph Lynx
design, which was to be produced there, went with them. This led to
further trouble at the plant in Longbridge, Birmingham. As Sir Michael
observed, while a 1970s German auto industry manager spent 5 percent of
his time dealing with the unions, a British manager spent 60 percent of
his time doing the same.

All these struggles bought was
time. The company was simply not viable. Sir Michael’s idea of a
product-led recovery failed. The new designs that eventually emerged
from the strife-ridden company were bland and dull. Eventually, BL
entered into an agreement with Honda to build Japanese-designed cars.
The Thatcher government initially devised yet more bailouts, but then
reality set in. BL sold off its assets to people who actually knew what
they were doing (at the time). Jaguar was sold to Ford, Rover to
British Aerospace. The trucks, buses, and spare parts divisions were
also sold off. The rump that remained became the MG Rover Group, but went bankrupt in 2000 and was bought by Nanjing Automobile.

Ironically,
today the most productive car plant in Europe is in my home town of
Sunderland, where 5,000 workers build 330,000 Nissan cars a year. There
are still around 250,000 people employed in the design and manufacture
of vehicles in the UK, more than BL employed in Mrs. Thatcher’s time.

The
lessons from Britain are clear: If you want to run an auto industry
into the ground, panic-driven R&D, strong unions and vast
government cash infusions are the way to go.

Iain Murray is
Director of Projects and Analysis and Senior Fellow in Energy, Science
and Technology at the Competitive Enterprise Institute.