The BMC>MG Rover Story : Part Three – British Leyland, turbulent times
The creation of the British Leyland Motor Corporation, in 1968 may have been a long time coming, maybe it is also easy to describe it as an answer to a question that no one had yet posed, but there is a kind of convoluted logic as to why it happened. As we have seen, BMC was a most influential and respected manufacturer of motor cars.
After BMC had been formed in 1952 to form the fourth largest car manufacturer in the world, the combined company had gone from strength to strength, exporting hundreds of thousands of cars to all four corners of the world. BMC had single-handedly re-written the rulebook for small cars, producing the Mini in 1959, and then following it up in quick succession with the ultra-successful ADO16. Before this point, their range of cars (as were those of their UK competitors) was a painfully conservative one, reflecting the tastes of UK car buyers at the time, comprising mainly of boring rear wheel drive saloons, such as the Morris Oxford and Austin Westminster.
Piece-by-piece, however, the entire BMC range would be replaced by a new range of Issigonis-engineered front wheel drive cars. Over on the other side of the car manufacturing fence, Triumph had also had a successful time in the Sixties, having launched the popular and well-liked Herald in 1959 and then the Harry Webster engineered and Michelotti-styled 1300 in 1965.
Knitting together BMC’s and Leyland’s ranges
Along with this range of small cars that had carved out a profitable niche slightly above the Austins and Morrises of the world, there was also the highly successful 2000 model that, along with Rover’s 2000 model, had the executive market practically to itself. Rover had also had a good few years in the 1960s. First there was the P5, then the P6, both templates that for years to come, other manufacturers would use in the creation of their upper-middle management cars. Merger mania was beginning to take hold of the UK car industry, however.
During the ’60s, management teams across the industry were seeing that the European and American car industries had grown at an extraordinary rate – post war consumerism had created a massive build up in the demand for luxury goods across the globe and people desperately needed cars. Japan, and Germany in particular rebuilt their car industries at an astonishing rate and were only too happy to meet this demand.
Reasons for this change in fortunes are diverse and many, but Germany and France had used their Marshall-Aid money wisely, investing in infrastructure and industry whereas the British Government had not. The result of this was that the UK were not able to ramp up production at anywhere near the same level as the competition – and demand at home was artificially kept low by the Government’s tight squeeze on Hire Purchase regulations.
Where once, in the immediate post-war era, the UK had been the largest producer and exporter of cars in the World, by the ’60s we had fallen behind the USA, West Germany and Japan. Companies reasoned that in order to survive the next few years in the increasingly competitive world stage, they would have to be bigger than the next guy – and if that meant swallowing up his company, then so be it.
Super-salesman Donald Stokes had made his name as one of the outstanding salesmen of his generation when he had successfully managed the Leyland Truck company, turning it from a ragbag of UK manufacturers into one of the largest producers of trucks and buses in the world, earning a fortune for the company in exports, too. His masterminding of an audacious £9m sale of Leyland Olympian buses to Cuba in 1964 had proved his abilities as a salesman beyond any doubt. He had risen quickly through the company and once he had reformed it, this ambitious man had wanted a new challenge.
Fresh from these successes in the Heavy vehicle market, he found his challenge when he turned his hand to the car industry, no doubt dreaming that he could perform the same magic. He had pushed forwards a plan to purchase the Standard-Triumph group, which he did in 1961 and then followed this up by purchasing Rover in 1967. Times were good and the new car company, Leyland, had a good few years in the 1960s on the back of the revitalised Triumph range and the success of the range of Rover cars already in place.
Initially, there would have seemed little logic in this joining of Britain’s two middle management brands of cars, but Stokes saw a very healthy export market for Triumph’s sports cars and with Rover he had picked up the favoured transport of upper management; the Rover P5.
Besides, Stokes bought Rover when it became clear that Leyland had lost in its battle with BMC to purchase Jaguar. The competition between the Rover and Triumph 2000 models was not seen as a problem because both cars were such a huge success on the UK and European markets, almost having the 2-litre class in the UK completely to themselves. If the Two cars held 90% of their given market and there was no competition, then how could that be a bad thing?
The reality of that situation was somewhat different: Why have two cars competing against each other – and worse – using no shared parts?
So by 1967, Donald Stokes, through a couple of careful acquisitions, controlled 16% of the UK car market, but more importantly, Leyland were now a serious force in the car industry and Stokes himself now was a very influential voice. But what of BMC and more importantly, why did Stokes decide to take that final step into the realm of mass production? During the 1960s, BMC was failing to make hay whilst the sun shone brightly for them. The Mini was making the company no money whatsoever, even though it was (along with the E-type Jaguar) the trendiest car in which to be seen in around the West End of London and other fashionable European cities.
The ADO16 was fighting an almighty battle with the Ford Cortina for sales supremacy in the middle ground of the market and was selling in huge numbers, but was also costing the corporation a packet in warranty costs. As we have seen, Issigonis had used the same formula to produce the 1800 with disastrous consequences and the less said about the forthcoming Austin 3-Litre flagship car, the better.
These were two cars that lacked in appeal and gave away market share in the upper-medium class. In the years between the launch of the 1800 in 1964 and the Leyland takeover in 1968, there were no new car launches of any relevance and although the business still outwardly looked in reasonably good shape with BMC holding over 30% of the new car market, the Corporation was losing money at an alarming rate.
This is where things seem to have gone even more than a little bit awry. BMC, no doubt looking over its shoulder at the successful Leyland Company, absorbed Jaguar in 1966 to form the short-lived British Motor Holdings (BMH). The cost to the Company’s finances had been considerable. Maybe the decision was made to go with Jaguar because BMC management knew that even before its launch, the 3-Litre was a lemon and so felt that the Jaguar/Daimler range of cars would represent the pinnacle of the BMC range in the face of the almost-certain failure of the 3-Litre.
Whatever though, there was a huge chasm in the BMH range between the Austin Morris models in the family car sector of the market and the world class Jaguar range. Of course there might have been some logic in this takeover, had the cost to BMC not been so great.
After The Merger: A mess to be sorted out
The Government decided to encourage Donald Stokes of the Leyland Group to meet up with George Harriman of BMH and less than subtly push for a merger. This form of Political intervention was not unheard of back then and when the Harold Wilson Government invited Stokes to talk to BMH, the edict was for a ‘Big get together’.
In order for the British Motor industry to survive on the worldwide stage, the Government reasoned, it needed to be as large as possible. It must have looked like manna from heaven to everyone when the Leyland Group and BMH decided to get into bed together – in one fell swoop here was created the British answer to General Motors, with the capability of producing a million cars a year. Donald Stokes looked at this as a great opportunity, not only seeing this as a way of increasing Leyland’s volume massively, but also it was a wonderful opportunity for Stokes to become the figurehead of the British Motor Industry.
Stokes, himself initially revelled in the role of Captain of the British car industry, using the media in a most effective way, something that made him quite unlike any other British Industrialist. So what had Stokes inherited? Well, it must have seemed unbelievable to him that BMC had nothing to show in terms of future cars to produce, but this pretty much summed up the state of affairs in the company at the time: only the Maxi and the Mini Clubman were undergoing serious development and nearing completion.
A revised ADO16 was in the early stages of development – and of course the wonderful little 9X, a replacement for the Mini, was also undergoing development, but were soon adjudged to be too expensive for the new organisation to produce. Stokes also found that the management of BMC was no way near as strong as it should have been, in fact it was a lot worse than he ever would have imagined. If there was a tiny glimmer of light though, it was the fact that the company’s finances were not quite as bad as he was expecting (even though he would subsequently say otherwise), but if anything it would lull Stokes into a false sense of security – in truth, BMH had been in deep, deep trouble.
The overmanning in practically every area of the company certainly exacerbated the situation and as he also pointed out, this was in no part down to the lack of direction in the company, ‘After Sir Leonard Lord departed, there was no line of succession and I doubt whether they had a policy’. When Stokes took overall control of the newly merged company, he saw how much of a state the company as a whole was really in and he immediately started to make some fairly far-reaching changes to the management structure of BLMC.
Already the managing director of Leyland, Stokes took over the chairmanship of the company from George Harriman, who became the Corporation President at this point, having no further involvement in the day to day running of the company. He appointed an interesting mixture of management to back himself up with, appointing as his deputy chairmen, Jaguar man William Lyons and Lewis Whyte, formerly a big wheel in the world of insurance, who had joined the board of Leyland in 1964.
Beyond this, he had Leyland men take up all the senior positions in the company, most notably George Turnbull who was given the unenviable task of running Austin-Morris. The other notable new appointment high up was John Barber, who with 10 years of Ford experience behind him, was perhaps better qualified than anyone else at this level to influence company policy. It was sadly obvious to all observers, that of all the appointments in the senior positions only John Barber had any experience of life in a large car company, a situation made worse by the fact that Joe Edwards had left as a direct consequence of the management shake-up, which happened as a result of the merger.
Leyland’s car companies had produced 166,000 cars the previous year, but BMC was an entirely different proposition, having the capacity to produce a million cars a year. Stokes was the first to admit (in retrospect) that he and his company were out of their depth absorbing a company as large as BMC, having 190,000 employees at the time, but he defended himself by saying, ‘I was not and I have never pretended to be a manufacturing expert, ever. I have no pretensions as to that. I am an engineer by training but I think that my strength lies in selling and I think that it is worth recalling that we did sell, until the oil crisis, everything that BMC could make.’
If Stokes had been surprised by the state of the management chain, the overmanning and dearth of new models in the pipeline, he was absolutely appalled by the state of the company’s two principal manufacturing plants, Cowley and Longbridge. Both factories were badly in need of refurbishment; Cowley was especially bad, Longbridge simply appeared half finished and it was with all these woes in mind, Stokes had approached the Industrial Reorganization Committee for a £25m loan, with which to make improvements to the factories and to start restructuring the company.
Speaking in 1973, Donald Stokes stated that, ‘Although it had become apparent to us that BMH had financial problems, we could not have understood until we took over the management of the company just how serious and immediate they were. It was also not apparent just how heavily they were dependent on a range of models which were beginning to show their age, or what a paucity of new products there were to maintain a competitive position. We could not have foreseen how bad the industrial relations climate was to become or how vulnerable we were going to be to strikes at outside suppliers.’
The British Leyland situation was highly political and it was a rude awakening for Stokes and his team to see what kind of mess the company was really in. Immediately post-merger this empire amounted to no less than 48 factories, of which 23 were major BMH plants. It was all too plain to see to all observers that Leyland had absorbed a company that had not been party to a successful merger itself, not having been rationalised to any extent in the fifties, by management that were too concerned with building their cars to look at the potential problems of the future. The other problem was one of management.
Stokes had confided to Joe Edwards in 1968 that he was going to need assistance in running the company and after Edwards resigned, this left Stokes alone in running British Leyland. Had Edwards remained, things may have been very different – one can see a situation that involved Edwards being in charge of manufacturing and Stokes in charge of marketing actually working very well. As it was, Donald Stokes was noteworthy for being an adept manager of people – a great motivator – and he wanted to ensure that the company would be run his way – which meant initially at least, BLMC would be run like a one man show.
Stokes was to run British Leyland in very much a hands on way, analysing all costs – and it was not until the first raft of management changes that September that he began to devolve some of this work to George Turnbull. Because Turnbull took these tasks on board, he justifiably felt that it was he that was now Stokes’ favoured right-hand-man. This personal judgment would prove to be disastrously incorrect: Stokes was actually nurturing two managerial whizzkids – Turnbull was one, John Barber was the other.
In 1969, the Industrial Reorganization Committee called Stokes to task, and in the first of two full-scale meetings raised serious concerns about the overmanning and low productivity within the company and its concerns with BLMC’s poor industrial relations.
Tony Benn, who as Technology Minister, ran the IRC alluded to the troubles ahead following this meeting, ‘Had lunch with Donald Stokes and the Leyland board. The number of strikes now in the motor industry does indicate a complete breakdown of communication. When we began talking about this, they said that Barbara Castle’s speech last year – in which she had said that power was passing to the shop floor – had done more damage than anything else. I said that it seemed incredible that if this was true – and none of them denied it – there should be any difficulty about it being openly declared.
‘But they took a very conservative view, and although they were conscious of their own managerial defects, they were still a long way from realising that relations with the work force required a great deal more time and effort, thought and participation than they were giving.’
The only way to resolve the low productivity and bring the company into line with its competitors would be improve industrial relations, markedly but also at the same time, cut an estimated 47,000 jobs out of a total workforce of 190,000. Stokes honestly believed that he could maintain this level of over-manning by selling more cars and therefore, upping production.
At this time, Stokes found himself stuck between a rock and a hard place – on one hand he needed this level of manning to complete the company’s ambitious expansion plans, but on the other, in order to maintain the huge work force, he needed to get on terms with managing them correctly. One example of the malaise that was prevalent within BMH at the time of the merger was the complete lack of direction for future products, which was perfectly epitomised by the Austin Maxi. Here was a car that had been conceived to sell directly in the middle range of the market and yet, it was the absolute antithesis of cars that sold well in this market such as the Cortina and the Hillman Hunter.
This car was almost ready for launch, yet it had been the subject of a lengthy gestation, the accountants had corrupted its design and implementation, and the result was an unhappy mix of ideas. Stokes had looked at this car, immediately adjudging it to be unsuitable to sell, the styling left much to be desired and the interior was, ‘ridiculously stark – like a hen coop’.
Both he and Barber knew this car was simply not good enough and it was only the fact that there had been such a huge investment made at the Cofton Hackett that saved the Maxi from being scrapped before it was launched. As a result of the Maxi’s inappropriateness, Austin’s design staff found themselves with a new leader: Harry Webster was promoted from his role as head of new car development at Triumph to oversee the entire group’s product strategy – and first port of call was Austin-Morris.
Upon arriving at Longbridge, Harry Webster was asked by Stokes to formulate a plan for the future of Austin-Morris. Stokes made it clear to Webster that some quick decisions would be necessary in order to plan for the future, but as it was the sense of urgency that Stokes felt was right and very necessary. The man, who was pushed aside unceremoniously for Webster, was none other than the great man himself, Sir Alec Issigonis.
Leyland management felt that Issigonis had lost touch with the needs of car buyers and to a degree this may have been true, as the failure of the ADO17 had demonstrated. The problem was that Leyland’s perception was that Issigonis would not work alongside the new man, so without consultation with Sir Alec, Webster took his office – literally leaving him without a place to sit. This was a humiliation for the man responsible for Britain’s best selling car and its leading export – and as a result, it did not take long for Issigonis to lose heart and step away from the company.
Such was the absolute haste in devising future strategy, the future plans of British Leyland was modelled on the plans of their competitors, most notably Ford. Right down to the idea of new models being presented and evaluated, ‘on a red book basis’ (just like Ford). This meant that all projects at BMH were put under serious scrutiny; a revision of the suspension system of the ADO16 was scrapped, the 9X project was dropped and all spending at Longbridge was brought to a halt.
The Marina and Allegro strategy
These were trying times while engineers and managers sat aside waiting to see what Leyland managers and planners would do next. The plan that Webster devised in double-quick time involved the scrapping of badge engineering and having a separate range of front wheel drive Austins and Rear wheel drive Morris models. The idea was for Morris to produce a, ‘trend-type automobile’, or to use the layman’s term – a repmobile, something to win sales back from Ford and Vauxhall. Using this directive, he formulated plans for the product range: there would be two cars – the Morris Marina would need to come first because Stokes and Turnbull absolutely wanted to fight the Americans.
Later would come the Austin Allegro, which would replace the ADO16 and would be (to quote Turnbull) ‘durable’ in its styling and execution – in other words, the Marina was to be a sales-led, highly-styled car and the Allegro would be a timeless and utterly contemporary high technology small car – designed with a long production run in mind. That was the company’s immediate priority though, to replace the best selling ADO16 and introduce something resembling a cohesive vehicle range. That left the Mini at the bottom of the range and the ADO17 at the top. Work on the 9X prototype was cancelled soon after the merger as a result of the fact that the emphasis was placed very definitely on getting the Marina into production in double quick time.
The ADO17 replacement was, however, approved for production in 1970, which meant that in the order of priorities, the Mini replacement programme had yet again been deferred; this time to the larger car. Of course, this decision was outwardly correct: the ADO17 was selling in dribs and drabs, whereas the Mini was still selling as strongly as ever. The problem, of course, was that Stokes failed to recognise that the Mini did not need replacing so much as supplanting with a supermini, but it must have been terribly difficult for Stokes to prioritise these projects because all of them were an urgent requirement.
This difficulty was exacerbated by the fact that as talented as the BLMC design department was, it was too small: there was no way that all these cars could be developed concurrently – and when this idea was tried, resources were spread too thinly. Austin-Morris aside, the Specialist Division’s range of cars also needed addressing. A new sports car was required: the MGB was suffering terribly in the USA at the hands of the Datsun 240Z and because this was the company’s most important export market, this would also take precedence over Mini. Interestingly, even though the MGB was a success in the USA, Stokes decided early on that the new car should be badged a Triumph – old loyalties coming to the fore, perhaps?
Next, there was the Triumph 2500/Rover P6 clash in the executive car class – a single model would need to be developed in order to replace both of these cars. Again, massive company resources were poured into the development of the SD1 project and by early 1971, Donald Stokes had given approval for the car to go into production, and a new greenfield factory to build it – long before Austin-Morris received any resources with which they could use to work on replacing the Mini. Once development of the ADO71, SD1 and TR7 was well underway and the Allegro was all-but launched, the matter of how to replace the Mini was dusted off yet again, in 1972.
All of the work that Issigonis had completed with the 9X in 1967 went to waste and the company asked for completely new small-car strategy to be drawn-up. As a result of this, the ADO74 was created, but because of the cash crises of 1974, it was cancelled by John Barber – from the ashes of this project raised the Metro, launched in 1980, but as subsequent events have shown, it came perhaps five years too late. All these new model programmes were admirable enough, but Stokes fell into the trap of replacing like with like and not anticipating the way that the market would change: the range of cars that were on offer needed a wholesale rethink and not just model on model replacement.
The dealers were still powerful within the company and were prone to calling the shots – defining model strategies to suit their needs. Filmer Paradise, newly installed as the overall Austin-Morris Sales and Marketing Director did embark on a series of dealership closures, but it was handled badly and as a result, the importers – principally Datsun – picked up these sites and their customers.
Finally, factories were not closed soon enough because the Unions held too much influence over the Management (and Government) to allow any bloodletting – and because of Stokes’ unstinting belief that he could sell every car that BLMC could build. Industrial relations were a pressing matter that needed to be improved. It was as much through pressure from the IRC as it was from the sheer number of lost working days and, therefore, lost vehicle production.
In 1970, British Leyland appointed Pat Lowry as director for industrial relations, the first time in the company’s history that such a role was felt to be necessary. It did not improve matters one bit. As a result of his appointment and John Barber’s recommendations, the corporation changed the terms and conditions of 134,000 workers over the period of three years.
Historically, workers had been paid for piecework – their rate being determined by how many cars they built, this was changed to a flat daily rate. In fact, as one ex BLMC finance manager described it, the changeover had disastrous consequences: ‘Under piecework the worker chased his parts and was motivated to produce; his wage depended on it. The systems for Production Control and Quality were dreadful and were horribly exposed when the move to Daywork happened. The management had little idea of how to control things and as a result cost overruns were running at huge figures per car. In theory the standard costing system showed we were losing money on Minis. But that assumed cars were produced at standard cost. Scrap quality and sheer bloody mindedness meant each car’s labour costs were some 30 to 80% higher than standard. Management basically refused to recognise the problem and got VERY upset if it was pointed out to them’.
In principle, the system was much fairer, but industrial action was reaching epidemic proportions at the time: in 1969, the corporation lost 5 million man hours, which doubled to 10 million the following year. In 1971, this improved to 7.4 million man-hours, but returned to the high of a couple of years previous, 9.6 million. In May 1973 to coincide with the launch of the Allegro, Donald Stokes announced that he would be carrying on as Chairman of BLMC for another six years, but decided that it would be a suitable time to make some far-reaching management changes.
Firstly, he was to upset the apple cart by promoting John Barber from his post as the Company finance director into the role of Deputy Chairman – into the finance role he vacated, slipped Alex Park. It was to herald the start of an intended major expansion programme for BLMC and reflected the management’s confidence in the ability of the Allegro to match the sales success of the ADO16.
The intention was to increase production to a million-and-a-half cars per year and because there were new models in the pipeline, new engines and a new factory, Donald Stokes believed that this was the beginning of a new phase of growth in the company’s history, ‘This is the beginning of a very exciting era for British Leyland, and I think our designers, engineers and production men are going to provide you with a British motor industry of which you will be very proud,’ Stokes bullishly proclaimed.
The consequence of Barber’s promotion was that George Turnbull was overlooked in the promotion game and would remain in charge of Austin-Morris. Part of reasoning behind this promotion of Barber in favour of Turnbull was that previously, he had vociferously opposed Donald Stokes’ plan to reorganize the administrative structure of British Leyland so that all marketing and management would be centralized. This policy of centralization had not worked previously at BMC and George Turnbull reasoned that it would prove to be just as an ineffective policy at British Leyland; he was a hands-on man and knew that to run a company as large as British Leyland from an ivory tower would result in management losing touch with people on the ground.
As it was Stokes pulled rank on Turnbull and set-up the 14-storey Leyland House at Marylebone, central London as the company’s headquarters and administrative centre. Turnbull eventually viewed this as a big enough difference in opinion to become a resignation issue and when he was finally passed-over in favour of Barber, it would prove to be the final straw for Turnbull, who was becoming increasingly disillusioned with his ongoing boardroom battle with John Barber.
Certainly, the day-to-day running of Austin-Morris was not an enviable job – with its labour relations issues and poor, undesirable product range. Despite all this, he made quite a name for himself there. Turnbull achieved tangible results at Austin-Morris; in 1968, the first full year of his appointment, the volume arm lost £16m, but by 1973, Austin-Morris actually turned in a £17m profit, contributing almost 50 per cent to the entire group’s profits.
He would not remain for the duration, however. As it transpired, the centralization plan devised by Stokes was not a terribly effective one and so, in the run up to the end of British Leyland as a private company; it would prove to be yet another failed Stokes policy. The crisis was deepening and although, it was not uniquely one of management, (the existing product range had a great deal of responsibility in this as well) Stokes took no time at all in explaining that a great deal of delegation did actually go on within British Leyland – despite what all Leyland watchers may have believed.
The fact that he was explaining his management to the wider audience would indicate that in his own mind he knew that his management team had not produced the desired results. He went on to say that because he was the company figurehead, he was blamed for a lot that went wrong within the company, but his managers would be the ones that would take the credit for anything good that happened. Of course, this is a usual situation in any company – there is a failure and the boss takes the rap, but Stokes was making it quite clear that perhaps he was a victim of circumstance and that the imminent collapse of British Leyland was not his own responsibility.
An escalating sense of panic evident in the corridors of power at British Leyland permeated all within, but it was no surprise that George Turnbull announced his retirement from the Company a mere five months after John Barber’s promotion. Turnbull had accepted an offer from the Koreans to establish Hyundai cars – an opportunity that Turnbull was all-too-keen to grab with both hands.
He did, however, recognize that the task of managing Austin-Morris had been greatly more difficult than he had ever envisaged and he acknowledged that the only reason he had coped was because he had good people around him. Difference of opinion between John Barber and George Turnbull had also played a part in the resignation and this had been identified by Turnbull’s replacement, ex-Ford man David Andrews.
As Andrews put it in succinct terms, ‘One was a doer and one was a planner’, and being an ex-Ford man, Barber wanted British Leyland to play its greatest strengths by going upmarket: Barber knew that British Leyland in its then current form would have no hope in competing with Ford in the Escort and Cortina market. Turnbull, on the other hand, wanted British Leyland to remain in the volume business, thereby remaining a player on the world scene. As a result of Turnbull’s departure, Barber was promoted yet again to become the Deputy Chairman and also the Managing Director. This announcement was made to coincide with the release of British Leyland’s 1973 financial results.
The situation looked buoyant for the company, showing a profit £51m, but the reality was that, in John Barber’s view, this was not nearly enough profit. Barber wanted to instigate a new model programme (involving replacing the Marina and the small Triumph range) and he also wanted to cut the excesses in the manning levels in the factories. Actually, John Barber did manage to start slimming manning by initially employing a no-hiring policy. As he subsequently stated, ‘I got rid of 30,000 people and I did it quietly too, without hitting the headlines’.
Because of this small step in the right direction, the company’s finances began to improve, only to be thwarted by the Arab-Israeli war in October 1973. These international upheavals had huge implications for the company’s already fragile finances – the Mini became the company’s best selling car ahead of the Marina, which had serious effects on the company’s balance sheets. Where the firm had projected another profit for 1974, it actually made £16.6m loss. At the same time, there was yet another high profile management resignation, in the form of Harry Webster – he was to be replaced by Spen King – the father of the Range Rover.
Time running out
Time was now very much against Stokes and his team and although the Morris Marina sold in reasonable, if not sensational numbers, following its introduction in 1971, the Allegro and Maxi both failed dismally in their markets. On top of this, the market for new cars had changed in a most drastic way in the run-up to the October War, which had far-reaching consequences for the company, as a whole. Demand for new cars in the UK had gone through a spectacular boom in 1972 (the market increased from 1.3m to 1.6m) and just when BLMC could have done with being able to boost production to meet this increased demand, they were unable to. At this time, British Leyland should have been in a wonderful position to clean up in the market, having two new small-medium cars to sell.
Unfortunately, at the very time they needed to get cars built in order to satisfy demand, the management had been embroiled in a massive battle against the Unions to actually get the cars produced. Industrial relations were at an all-time low and at a time when Ford stuttered on the Market with their new Cortina, British Leyland were also incapacitated by strike action at Longbridge and Cowley and so, were unable to take advantage of this fact. This was most definitely a vital missed opportunity and it may be said that the cars that BLMC had for sale were unappealing, but customers were still not given the chance to actually buy their cars. Had the company been able to increase production and that choice offered, would the cars have sold, though? Donald Stokes seemed to think so, but in reality, that is one question that we will never be able to answer.
One thing we can be sure of though is that as a result of this failure to boost production, the more or less consistent 40% market share held by British Leyland from the time of the merger now dropped catastrophically to 33.1% in 1972. This was a disastrous fall in sales in the period of just twelve months, one that is unprecedented in the industry. Alarm bells should have rung loudly throughout Longbridge and Cowley, echoing through Management offices, but nothing tangible was done to ramp up production levels when they were needed. The Unions were calling the shots. BLMC could justifiably say that their sales were consistent with the previous year, not taking into account the fact that theirs was a smaller percentage of an expanded market. 1973 and 1974 however, were very telling.
When the market contracted back to pre-sales boom levels of 1.3m in 1973, (as a direct consequence of the October War) the market share of BLMC share then remained static at around 30%. In other words, the market share lost in 1972 due to their inability to step up production had seemingly been surrendered for good. Most notably, this had been to Ford, who improved as they got on top of the Cortina III’s teething troubles, but also to the importers, especially the Japanese, most notably Datsun.
When this decline through loss of sales (the Allegro and Marina combined were performing disastrously compared with the ADO16) and mounting warranty costs (cars were being so badly built between strikes, they were gaining a reputation for biblical unreliability) continued through 1974 with mounting losses, British Leyland’s backers, the City Banks, were becoming very nervous indeed. As a direct consequence of the woes that British Leyland were going through in the summer of 1974, the company scaled down their previously budgeted-for expansion plans.
British Leyland was not in a position to pay for them and so, asked the City Banks to help them out with medium term finance – amounting to an overdraft facility £150m. The company also instigated talks with the Department of Trade and Industry and told them that they would be able to continue with their expansion plans if they could find £100 million from external sources – or to put it more directly, the Government. In September, the emergency cash conservation plan was put in place, but in the end, British Leyland lost £23.9m in the year-to-date – what made these poor figures look worse, where that British Leyland had an Overdraft of £148m, as opposed to £105m in bank deposits.
The government steps in to bail out British Leyland
The banks that had extended British Leyland its medium term finance had now become quite concerned and so, in November of that year, they instructed the accountants Thomas McLintock and Company to examine the validity of the company’s cash projections. As a result of these concerns, tripartite talks were instigated between the Department of Trade and Industry, the Accountants and British Leyland on 27 November 1974. The position was grave and Donald Stokes knew this, as did John Barber and so, it was with complete candour that in these tripartite talks, British Leyland stated that they would reach the limit of their overdraft in January 1975.
The Ryder Report commissioned
They also stated that it was also likely that they would not be given further facilities from the banks. Tony Benn spoke to the House of Commons on 6 December and stated that as a leading exporter, and a huge employer of people in the Midlands, it was of paramount importance that government money should be used in the assistance of the company. Plans were drawn up for the emergency assistance of British Leyland and Sir Don Ryder was appointed on 18 December to prepare a report into the future of the company and how to run it under the auspices of government control. Government approval was also given for a further £50m of bank lending.
At the time, Donald Stokes made a statement to the press concerning the immediate future of British Leyland – and we repeat this in full, as published in Motor Magazine, 4 January 1975: All major decisions now taken by BL are subject to government approval until at least next spring. Then the review board, headed by industrialist Sir Don Ryder and including Mr Stanley Gillen (former chairman and chief executive of Ford of Britain) is due to report – confidentially – on the affairs of British Leyland. The report will not be made public as it will contain information of “great commercial value” to the Corporation’s competitors, but Mr Benn, Industry Secretary, has assured the commons that he will reveal its recommendations and their financial implications.
The review board is briefed to make an overall assessment of British Leyland and its future prospects. Spheres due to be covered include corporate strategy, investments, markets, organization, employment, productivity, management-labour relations, profitability and finance. The fact that government control over decision making is a condition of financial backing for the corporation emerged during the commons debate when Mr Benn moved and order authorizing the government to guarantee British Leyland bank borrowings up to £50m. The order was approved by 149 votes to 13, a majority of 136. Only a few hours before the commons debate, BL Chairman Lord Stokes, Mr John Barber, managing director, Mr Alex Park, finance director, and Mr Pat Lowry, industrial relations director, faced the press in Leyland House.
Commenting on the year’s financial results, Lord Stokes said: ‘We made a profit of £2.3m before tax, which is considerably better than anyone forecast and a fairly creditable achievement.’ But in the first half of the year, Leyland were £16.6m in the red because of the three-day week. In the second half, they made a profit of nearly £19m before tax. However after paying £9m in tax and taking into account the cost of closing the Australian manufacturing plant (£15.7m), the corporation lost £23.9m compared with a profit of £27.3m in the previous 12 months.
Lord Stokes added: ‘We have not been helped by industrial disputes and inflation. We need additional overdraft facilities – hence the approach to the government. A very substantial part of the amount required is to cope with the present position: We must make vehicles with lower wind resistance, lower petrol consumption and better carburetion. For example, we need £40m for new engine development.’
Mr Barber suggested that the corporation would require as much as £100m over the next five or six years if it were to finance its investment programme of £500-600m. Lord Stokes rejected suggestions that profitable parts of the corporation, such as Jaguar, should be sold to raise cash, though he admitted there were always people ready to buy some parts of the group too cheaply.
‘All industrial companies in the UK are affected by inflation but British Leyland is particularly vulnerable because production lost due to strikes has prevented the building up of reserves. The corporation inherited numerous plants each with its own different industrial relations customs and practices and although considerable progress has been made, external factors have been highly unfavourable.
‘Since BLMC was formed, a massive number of vehicles and a large quantity of service parts have been lost as a result of internal and external strikes. These losses occurred largely in periods of high demand for British Leyland products and in most years, virtually all lost production could have been sold.’
Stokes was very clear in where he thought the blame lay for the collapse of BLMC. It was a combination of woes: · Strikes – and it can be never over-emphasized enough that component suppliers shared their blame along with BLMC’s own Shop Stewards in this, causing the company to employ a “dual sourcing” policy that reduced purchasing efficiency.
The model range – BMC’s inability to develop a new range of cars in the mid-Sixties and that final crushing blow was dealt to the company when the effects of the oil-crisis began to bite. Had one of these factors not been present, then maybe things would have been a great deal different, but the fact of the matter was that even though Stokes was not allowed enough time to see the fruition of his new model programme, a great deal of blame for the collapse of BLMC lay directly at his feet.
The Marina was a success, but the Allegro was not – it was a disaster, in fact and even though Stokes thought that he could sell every one that was built in 1973/74, its subsequent sales performance would indicate that to be untrue. In truth, the position of Donald Stokes was an impossible one to be in: He had to build an entirely new range of cars from the ground-up, he was hamstrung by the fact that Unions did not want to build the cars they already had but most sadly, Stokes had no time in which to sort out the mess.
Harold Wilson was perhaps correct in believing that Stokes should not have been made the scapegoat for the collapse of the company – he was absolutely in a no-win situation, but in the Six years that he headed the company, its market share fell from 40.5 per cent in 1968 to 30.9 per cent in 1975.
These figures will stand as the legacy that Donald Stokes left the company.