History : British Leyland, the grand illusion – Part Two
Ian Nicholls, AROnline’s own resident historian, follows up his excellent run-down of the British Motor Holdings story with a five-part study of the British Leyland years, 1974-1977.
In the second part, we learn all about British Leyland’s Government bail-out, the Ryder Report and see the reactions to it from the Government, from industry, and the unions. Not everyone thought it was a great idea at the time…
Owned by the people on behalf of the people
On 6 December 1974, Tony Benn, now Trade and Industry Minister, announced to Parliament that, ‘Discussions have been taking place with the company regarding both its short-term requirements for working capital and its long-term investment programme.
‘Because of the company’s position in the economy as a leading exporter and of its importance to employment both directly and through the many firms that are dependent on it, the Government are informing the company’s bankers that the approval of Parliament will be sought for a guarantee of the working capital required over and above existing facilities. I am satisfied that this will enable the company’s requirements to continue to be met without interruption.’
‘In response to the company’s request for support for its investment programme, the Government also intend to introduce longer-term arrangements, including a measure of public ownership. In order to help the Government in framing a scheme for this purpose, they propose to appoint a high-level team, led by Sir Don Ryder (above), including members drawn from the Industrial Development Advisory Board, to advise on the company’s situation and prospects, and the team will consult the company and the trade unions in the course of its work.
‘If the Government are required to put substantial sums of money into British Leyland in view of its importance to our national economy, it is quite right that the taxpayer in making that contribution should get with it an appropriate measure of public control and accountability.’
The Westminster reaction to BL’s bail-out
Labour backbenchers cheered Mr Benn’s rescue operation, which would provide overdrafts and a cash injection, and were really elated at this chance of massive State intervention.
Conservative opposition spokesman Michael Heseltine said: ‘The problem is that once you have the Government involved in a company it becomes regarded as a bottomless purse and there is less incentive to solve the problems.’
When British Leyland was founded in 1968 by the merger between the Leyland truck and bus giant and British Motor Holdings, the shares were 60p each. At one time they reached 92p. Then the slide began. In 1972 Lord Stokes called on his Shareholders to put up an extra £50m of new capital to back his ambitious expansion plans. The faithful chipped in 45p for each unit, only to see them slide to 7p each.
The investors had seen precious little return on their money, since the company was formed, profits had averaged only 5p a year after tax on every £1 of capital tied up in the business. British Leyland was about to become a political football, the so-called post-war political consensus was a myth. Labour left wingers and the trade unions advocated full blown nationalisation and workers control. This was at a time when Triumph had been strike bound for two weeks.
One picket said: ‘I would sooner see the firm go under and the Government take over than the men give in. It’s a fight to the finish.’
The intervention of the Government did little for British Leyland’s fortunes. In January 1975 the Cowley engine tuners went on strike. In a speech the Prime Minister, Harold Wilson, said: ‘Parts of British Leyland are profitable, others are not… But public investment and participation cannot be justified on the basis of continued avoidable loss-making…
‘Our intervention cannot be based on a policy of turning a private liability into a public liability… The achievement of that aim does not depend on the action of the Government alone… In a very real sense the success of public intervention to fight the threat of unemployment means a full contribution, a fair day’s work for a fair day’s pay by everyone for whose security we are fighting. The wider and wholehearted participation of those whose future rested on the success of the Government’s decisions.
‘What is not a matter for argument for the future is this. With public capital and an appropriate degree of public control involved, the Government could not justify to Parliament or to the taxpayer the subsidising of large factories involving thousands of jobs, which could pay their way, but which are failing to do so because of manifestly avoidable stoppages of production.
‘What is at stake in Britain in 1975 and the year after that is the future of the employment of our people. That, from now on, depends not only on Government finance and participation but on the wider and wholehearted participation of all those whose future and whose families’ future depend on the success of the decisions the Government has taken and will take, and which they intend to see through.’
Mr Leslie Huckfield MP, a Labour backbencher, said Mr Wilson’s remarks showed that be knew very little about the car industry. He went on: ‘If he talked to any of my constituents working at Jaguar, Triumph, or Morris Engines in Coventry, he would find that there is a real determination to make British Leyland succeed, especially under public ownership.
‘The real culprit is the chronic failure of management to invest when Continental car workers have twice as much investment at their elbow as those who work for British Leyland. These are the comparisons that the Prime Minister ought to be making instead of blaming my constituents.’
The lack of investment was a pet subject of the left. While it was certainly true, British Leyland had mortgaged itself to the hilt to invest what it could and now the banks had called time. And how could British Leyland generate cash if it was strike bound?
New models – a new beginning?
On 26 March 1975, the ADO71 was launched as the Austin Morris 18-22 series. BLMC replaced the boxy Landcrab with Harris Mann’s startling and futuristic wedge-shaped saloon. A waiting list soon built up. The ADO71 was by far the best of the Leyland-financed replacements for the Issigonis front-wheel drive cars and was, if anything, better than the outgoing ADO17.
The ADO71 had two drawbacks. It was hopelessly under-developed - no doubt a result of British Leyland’s stretched finances – and it was built at Cowley, perhaps the most militant plant in the British Leyland empire. During 1974 and 1975 Cowley became a byword for strikes, low productivity and poor industrial relations.
After six months of stoppages and warranty claims, when the waiting list had evaporated, the range was re-branded as the Princess. The relative failure of the ADO71 meant that BMC/Austin Morris had now shot its bolt. There could be no massive expansion into the wider European market because consumers did not want to buy the product in sufficient numbers and so, as in 1968, salvation seemed to be in the shape of yet another new generation of models, this time funded by the taxpayer.
On 22 April, the Cabinet discussed the Ryder Report. The Government was having to make public expenditure cuts at the time and was being asked to invest a minimum of £1.4bn in a company valued at £60m and there would be no return on the money for at least seven years. The Government recognised the need to reduce over-manning but also had regard for plants in assisted areas such as Scotland and Wales.
The Government as the majority shareholder could influence the expansion or contraction of these plants. In other words, scattered plants like Bathgate, Llanelli and the Rover transmission factory at Pengam, Cardiff were safe from closure if the Government saw fit to veto such moves.
The choice was… no choice
Tony Benn argued that it was essential to keep British Leyland going in order to stop car imports. However, the Chancellor of the Exchequer, Denis Healey, warned that the Government was committing as much as £2.8bn over seven years and Harold Lever saw it as a grandiose folly with no guarantee of success. In reality the Government had no choice but to nationalise British Leyland or face the prospect of mass unemployment.
The next day, Derek Robinson, the Co-chairman of the combined British Leyland Shop Stewards’ Committee and Convener at Longbridge, said in Birmingham: ‘We would agree with compulsory redundancy for one section at British Leyland, that is management, like Stokes and Barber. ‘Sheer mismanagement is responsible for the mess we are in at British Leyland. We would wholeheartedly endorse the removal of British Leyland top management and their replacement by competent people.’
On 24 April, the Ryder Report was unveiled. Sir Don Ryder knew which side his bread was buttered on and delivered the kind of report his political masters wanted. The report was ludicrously optimistic, predicting that British Leyland would maintain its existing market share (UK 30.9 per cent) well into the 1980s, advocating injections of taxpayers, money to replace the firm’s outdated equipment, worker participation and centralisation of management. The company would be divided into four divisions.
- British Leyland Cars
- British Leyland Trucks and Buses
- British Leyland Special Products
- British Leyland
The report did call for a ‘contribution from the workforce in agreeing to manning reductions and greater mobility and inter-changeability of labour.’ The report also demanded that, for every £1m provided by the National Enterprise Board, British Leyland’s car manufacturing had to find a further £1.5m out of profits.
It went on: ‘Our forecast is that BL’s profits as a percentage of sales should improve to 11 per cent in 1981/ 82 compared with an average of 6.5 per cent in the period 1968/69 to 1973/74. BL’s return on capital employed is also forecast to improve to 19.6 per cent in 1981/82 compared with an average of 9.6 per cent in the period 1968/69 to 1973/74. While we recognize that this is not a satisfactory return, it must be appreciated that it is caused by the past massive under-investment. After 1982 BL should start to reap the benefits of the new capital expenditure programme.’
The Ryder Report made the same mistake that the politicians and analysts had made back in 1967/68 when BLMC was created. This was the naïve belief that simply throwing money at the problem would make it go away. The assumption was that consumers would blindly buy the company’s products regardless of their individual merits.
Casualties of war
There was no place for Managing Director John Barber in the new nationalised British Leyland. He was replaced by Finance Director Alex Park. John Barber, when he himself was Finance Director of BLMC, had repeatedly and publicly warned that the company’s performance was not good enough. His reward for having his finger on the pulse was to be made the Ryder Report’s scapegoat.
The Government proposed to take a majority shareholding while agreeing with the report’s recommendation that it should offer to buy out existing shareholders at 10p a share and underwrite a new rights issue to provide fresh equity capital of £200m.
The Prime Minister, Harold Wilson, told the House of Commons: ‘I would like to make it clear from the outset that, following the initial injection of equity capital in 1975; the release of further stages of Government funding will be determined in the light of the contribution being made to the improvements in the performance of British Leyland by better industrial relations and higher productivity.
‘The company employs over 170,000 people directly in this country, and the livelihood of several hundred thousand more is dependent on it. I have to tell the House that in this decision a million jobs are at stake’
- Harold Wilson
‘This is a condition to which the Government attach great importance. The House should be in no doubt about the significance of this company to the national economy and the importance of putting it on to a sound basis. British Leyland is our biggest exporter; last year its direct exports from this country amounted to almost £500m. The company employs over 170,000 people directly in this country, and the livelihood of several hundred thousand more is dependent on it. I have to tell the House that in this decision a million jobs are at stake.
‘The choice before the Government was stark but unavoidable. If we had let course and allowed the company to slide inevitably into receivership, or if we had permitted savage reductions in its size with its production effectively confined to a specialized range of vehicles, then there would have been a major loss of confidence, at home and abroad; not only in British Leyland but in British industry as a whole.’
The union reaction to the bail-out
Mr Harry Urwin, Assistant General Secretary of the TGWU and a member of the National Enterprise Board, described the machinery then being used by BLMC as ‘a disgrace to the British motor industry’ and commented that, far from being malingerers the workforce at British Leyland was, because of old-fashioned equipment, having to work harder than others. The powerful British Leyland shop stewards’ movement would have a key role to play in the improved labour relations which the Government was demanding. Their leaders were delighted with the absence of mass redundancies, but gave a mixed reception to the rest of the proposals.
Eddie McGarry, Joint Chairman of the combined British Leyland Shop Stewards’ Committee and Convener at Triumph Coventry, said: ‘We would have preferred outright nationalization but we are delighted that the only reference to cuts in the labour force talks of more realistic manning levels. We cannot see any redundancies arising as a result of this because, given an injection of capital of this magnitude to invest in new equipment, we shall be able to gear ourselves to higher output ready for the expected improvement in world markets. I think you will find now that all the indecision about our future has been swept away, the trade unions will match up to whatever responsibility is laid at their door.’
His Co-Chairman, Derek Robinson, said: ‘My reactions are rather mixed. Firstly, I am delighted that they are not proposing wholesale redundancies. I welcome the Government’s general approach to take over British Leyland in this way and inject a lot of money over the next three years. We accept the implied philosophy that after three years the new British Leyland should be able to generate sufficient profits to provide for its own needs.
‘The removal of the present top management, the reduction in central staff and the establishment of four separately run companies all looks very promising. But I am sure shop stewards will want to reserve judgment until we know who the new managers are. We told the Ryder committee that we would like to see these men appointed jointly by the Government and the unions. The proposed works committees fall well short of the degree of participation we asked Ryder for and I fear that they would not be strong enough to motivate workers.’
Brian Mathers, the senior full-time official of the TGWU in the West Midlands, added: ‘This massive injection of capital should at last give British Leyland a chance to become a major, force in the world’s motor industry. It will end the uncertainty and the insecurity that has prevailed for so long and undermined morale. I believe workers will respond to the conditions which require improved labour relations in return for staged capital investment.
‘The fact that the new structure does not call for compulsory redundancy and closures should provide the right atmosphere for more co-operation between management and workers… Now the company has a fighting chance. The workers will make it succeed.’
Graham Turner, author of ‘The Leyland Papers’ wrote in the Daily Express newspaper: ‘I believe Lord Stokes walked away from the crucial over-manning problem – with the result that, in the first five years of the corporation’s life, the work force actually went up instead of down.’
‘It was in those years, I believe, Stokes could without brutality have pruned 40,000 out of the labour force. This would have made a difference of £80m a year to the company’s cash flow and might well have saved it from falling into Government hands. The company tried to behave as though it were a British General Motors, with operations in just about every market in the world.
As a result it spread its limited cash far too thin and robbed the home factories of much needed money for modernisations. Top management never unscrambled the vast mass of factories and facilities it inherited. The key Austin-Morris division remained a managerial shambles for far too long. The models it turned out fell well below the quality required, cost control was poor, labour relations bad. There was virtually no response from the trades unions to Stokes’s generosity on manning levels. With staggering irresponsibility, they took it as a symptom of softness and made some plants a by-word for feather-bedding and skiving.’
Graham Turner gloomily predicted: ‘The worst thing that could happen now is for the Government to nationalise Leyland in such a way that it became part of the Welfare State, perpetually dependent on handouts from us, the taxpayers. That would simply mean everybody lying back and waiting for the regular Government cheque and none of the things that should be done, would be done. It would create a condition of built-in somnolence.
‘What the Government must do is create a climate in which Leyland’s managers are given the backing and muscle to tackle its problems, particularly overmanning. If not, public money will be poured down the drain year by year. The company, unable to stand on its own feet, will become little more than a gilded industrial sanatorium.’
British Leyland’s gross profits over the previous seven years had been a mere £200 million on a revenue of £8.52bn, barely 2.35 per cent per annum.
Left wing reaction to the bail-out
The left-wing Tribune newspaper reviewed the Ryder Report. ‘The Ryder Report on British Leyland published last week delivers a stunning blow at the incompetence of the company’s management. Possibly the most startling fact to come out of the report is the evidence on what British Leyland did with its profits. Over a period of seven years, BLMC made a net profit of £74m and gave £70m of this away in dividends to shareholders. In other words, only £4m of the company’s profit was ploughed back into investment.
‘From the shop floor, focus of the report moves to the executive suite and take a detailed look at how company’s top management was structured. The main point of criticism concerns the fact that there were 14 Operations Managers reporting to the Managing Director. As any first-year student in business management knows there should never be more than seven managers responsible to the Managing Director. The load is not only impossible to bear but far too much one man to deal with adequately.’
The comment about the shareholders dividends was a veiled critique of the principle of private ownership. The role model for the new state-owned British Leyland was the huge nationalised Renault concern in France, then enjoying vibrant sales of its Renault 5 supermini, which dwarfed that of the Issigonis Mini at its zenith.
British Leyland to learn from Renault?
To the left, Renault demonstrated it was possible for the state to own a successful and profitable motor manufacturer. However, there was a vital difference: British Leyland had been nationalised because it was a failing business whereas Renault was a successful company which was nationalised in late 1944 because of the alleged collaboration by its founder, Louis Renault, with the occupying Nazi regime.
The post-liberation provisional Government that expropriated Renault was led by General Charles de Gaulle, who was no socialist. The change of ownership did not alter the management culture within Renault, which continued to flourish post-war.
In a speech the Trade and Industry Minister, Tony Benn, said of British Leyland; ‘Attempts to blame workers for the state of the company are superficial, offensive and do not merit serious consideration. The real fault is a chronic lack of investment over many years. The Ryder Report has identified this lack in the manufacturing industry as having brought one of Britain’s greatest firms almost to its knees. The choice now is to pull out of the British motor industry involving directly 160,000 jobs and affecting nearly a million jobs altogether—or to undertake a major re-equipment programme involving public ownership and a major advance in industrial democracy.’
Margaret Thatcher: ‘Government was wrong…’
The new leader of the opposition Conservative Party Mrs Margaret Thatcher said of the Ryder Report: ‘Its proposals put massive obligations on the taxpayer in return for very little from the firm and no commitments whatsoever from the unions. We therefore believe that the Government was wrong in so hastily accepting the report. The Government must show much greater awareness of the interests of the taxpayer and of the rest of the economy, on whom the burdens of such assistance have to fall.
‘The basic principle of Government policy, for British Leyland, as for any other ailing firm, must be to find a recipe for success. Unless we can ensure a flourishing and competitive industry capable of producing a product at a price people will pay, it is not only the future of British Leyland that is at stake, but the very standards and standing of the British nation itself ‘.
These were the contrasting views of two politicians who would dictate the political agenda in the years ahead. Love them or loathe them, their conflicting world views would form the core of their respective parties’ policies on offer to the British electorate in the years to come. Soon after this the key appointments were made in the new state-owned British Leyland Limited.
The most important was that of Derek Whittaker (left) as Managing Director of the car division, now called Leyland Cars. It has been remarked by Sir Michael Edwardes in his memoirs that British Leyland was effectively micro-managed by the newly enobled Lord Ryder from his National Enterprise Board office.
This argument has some credence. Why did Ryder choose two relatively inexperienced motor industry executives in the form of Alex Park and Derek Whittaker for such a political and industrial hot potato?
Lord Ryder also created the role of a Non-Executive Chairman of British Leyland, a part-time post first occupied by Professor Sir Ronald Edwards, who died in office, then the ill-fated Sir Richard Dobson.
In a parliamentary debate on British Leyland on 21 May 1975, Maurice Edelman, Labour MP for Coventry North West, which included Jaguar, said: ‘The idea of some sort of hybrid company, part private enterprise and part Government participatory would not work in the long run because the two philosophies inherent in such a company were contradictory.
‘What we should have done, and we might yet have to do, is to nationalize British Leyland. There was in Britain, unhappily, a sort of bran tub syndrome, a collection of illusions leading to the belief that somehow or other the public purse was inexhaustible. There must be a much more austere attitude to public expenditure. Unless they had a workforce which was prepared to accept the consequences of modernisation and re-equipment sustained by genuine industrial democracy, the Ryder Report would not work.’
Would the Ryder Report work?
Then on 10 June 1975 there was a Cabinet reshuffle. It was this that revealed Harold Wilson’s real attitude to the shift to the left in his Labour Party that had occurred since 1970. The Trade and Industry Minister Tony Benn switched places with Energy Minister Eric Varley (below). This was effectively a demotion for Tony Benn, who had helped to formulate the party’s industrial policy.
Harold Wilson was an election winner. He had that sixth sense that knew what the electorate wanted and he calculated that was not massive state intervention in all walks of life. It could be argued that Labour’s full-blown Socialist manifesto had denied them a convincing mandate in the 1974 General Elections at a time when the trade unions role in society was a political hot potato.
Clearly the party had lost a lot of support since its thumping 1966 General Election victory. Eric Varley was no charismatic, silver-tongued politician who painted a rosy view of the future in which everybody would work together to create a Utopian paradise, but he was a pragmatic minister that took a realistic view of the problems confronting the country.
The Cabinet re-shuffle was a courageous move for Harold Wilson, for Tony Benn had become the poster boy for a great number of rank and file Labour Party members with his natural charisma and enticing world view.
In July 1975 the BLMC shareholders accepted the Government’s offer for their shares. Lord Stokes said: ‘It is the Government who calls the tune. This is a very sad moment for me but we live in difficult times and the best thing we can do is to accept the situation as it is. Under the circumstances the Government offer is as much as we can get.’
Lord Stokes said they had tried every possible alternative. ‘We tried to see whether we could hive off Austin-Morris or even give it away.’
This was a remark that seemed to escape motoring historians. He had been to the Middle East to see whether anyone would put money into British Leyland, ‘but people are against investing in labour intensive industry in Britain today.’
City financier and British Leyland Director Jim Slater told the shareholders why their firm was broke. Waving a page from the Daily Mirror, Mr Slater said one reason was that ‘our labour is the least productive in the world.’
He quoted figures printed in the Daily Mirror on 26 June 1975 showing that production from workers in key British industries was lower than many European competitors. ‘In cars we are less than half as productive as others, in railways less than a third, in steel two-fifths, in shipbuilding a third, in coal a quarter,’ he said.
Mr Slater backed the Government rescue bid for British Leyland. The Daily Mirror reported on the declining fortunes of British cars in overseas markets. It said that British cars were shunned because of bad workmanship, unreliability, poor delivery dates and difficulties with spares.
The importer’s view of British Leyland
One importer, Armad Lorenzoni, who ran a big car distributor in Switzerland, said: ‘People here are losing confidence in British cars. We had a lot of problems with their engines, gearboxes and paintwork, and too often we had difficulty in getting spares. Getting the right kind of car in the right trim was very difficult. Now we read every day in the newspapers of strikes in the British car industry.’
Mr Lorenzoni’s firm used to import Triumph cars. Now they distributed Mazdas. He said: ‘When people lose confidence, they change to a make which they know will give them quick delivery, good quality and spares if they need them. With the Mazdas we sell now, there is only a four or five-day wait. And if there is any trouble, it is put right quickly. For instance, we had trouble with exhaust valves—so Mazda’s gave us a three-year guarantee. This gives confidence.’
In Germany, Karl Sautmann said: ‘Servicing and parts are difficult with British cars. It is much better to stick with a German one.’
Peter Stephens, chief of the Daily Mirror Paris office said: ‘The workmanship of British cars is not considered by Frenchmen to be as good as that of German cars. Service is very expensive and spares are difficult to get.’ In 1974 British imports into France were 1.3 per cent of the total, into Germany 0.6 per cent and into Italy (discounting Innocenti, which was owned by British Leyland) 0.4 per cent.
Mr Lines and the sub-standard Mini
Only two years earlier the same newspaper had reported on the case of Dennis Lines, a Vehicle Inspector who worked at Triumph in Coventry. He bought a Mini 1000 car for £855 through British Leyland’s discount scheme for staff.
He claimed he had spent seven days having faults rectified in the five weeks he had owned the car. He ended up with a list of 28 faults. Most of those complaints were about the paintwork, but he also had the rack-and-pinion steering replaced. In addition to this the handbrake did not work, the exhaust rattled, the heater was too noisy and the steering column made a grating noise.
There were other complaints about the car’s electrical system and bodywork. ‘We can all make mistakes. But my car should not have been allowed to leave the factory with this number of faults. I shall probably be unpopular for speaking out about a car made by my own company. But I believe you cannot stay silent if something is wrong,’ he said.
Dennis Lines had worked at Triumph’s Coventry plant since 1946. His car was made at Longbridge. ‘My complaints are not an attack on my workmates. I am criticising the system, which allows quality to be sacrificed for quantity. There is a lot of bad workmanship at British Leyland because some inspectors don’t bother any more. They seem to have been brainwashed,’ said Mr Lines.
British Leyland was shocked by this attack from one of its employees. ‘These complaints appear to be rather exaggerated. Quality is not being sacrificed for quantity, and it is certainly not true that our inspectors are brainwashed into letting faulty cars through,’ said a spokesman.
It was a disturbing story – if British Leyland could not produce a then 15 year old design satisfactorily, what hope was there for the newer models?
- Back to: BLMC, the grand illusion : Part One – Export or die
- Forward to: BLMC, the grand illusion : Part Three – A job for life?