Carmakers Recovery Assistance Program

While lawmakers consider whether or not to bail out an industry they holed beneath the waterline, perhaps they could learn from the history on another once-thriving auto industry, that of Great Britain. It’s a salutary tale.

By the late 1960s, most of the famous marques of the British motor industry – including Rover, Austin, Morris, Triumph and Jaguar – had consolidated into a “Big Two,” British Motor Holdings and Leyland Motor Corporation. LMC was profitable; BMH was not. BMH in particular was trying to sell cars that reflected the tastes of a bygone era (the Morris Minor had been designed in 1948). Foreign-owned companies were constructing cars in the UK much more to the market’s taste, like the famous Ford Cortina, that gave much better performance and fuel economy. Does this sound familiar?

In 1968, the British Labour government urged the merger of BMH and LMC into British Leyland Motor Company. This company maintained production of a variety of marques that competed against each other, and engaged in a crash program of research and development for new cars that would better serve the marketplace. The results were the Morris Marina, a car that my family happily bought and even more happily discarded, and the Austin Allegro. Both these cars sold strongly, on the basis that they were British (huzzah!), but in the end destroyed the reputation of British automaking. Caveat inventor!

Meanwhile, the new company was plagued by terrible industrial relations, with an overmighty labor union continually demanding better working conditions while providing worse service. (As an example, I once talked to a former senior officer of the Parachute Regiment, who visited an auto assembly plant as an adviser on leadership. He had seen a notice that the “tea break” was to be abolished in order to improve productivity and asked a worker how he reacted. The worker replied that he used his drill to add extra holes to the car door, weakening the construction and reducing the car’s working life. The worker believed that this would harm management, but not him.) The result was that the company became unmanageable and on the verge of bankruptcy by 1975.

The British 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 the ex-head of Ford UK, recommended government investment of over a billion pounds (about 1.2% of GDP at the time) to save the company, with the government taking an ownership share. The result was an effective nationalization of BL.

All this bought was time. The company itself was simply not viable. It entered into agreements with Honda to build Japanese-designed cars. Under the Thatcher government, there were initially more bailouts, but then reality set in. BL divested 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 hived off and sold. 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 5000 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.

However, the lessons 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.

Sound familiar?