By Maurice Corina Industrial Editor
A consortium of bankers comprising Barclays, Lloyds, Midland, National Westminster and First National City is being asked by the Government to provide big additional sums of working capital to British Leyland under a Treasury guarantee. The amount is still the subject of urgent negotiation between the Department of Industry, the Bank of England and the company’s financial advisers.
The guarantee is intended to buy time while an inquiry team, led by Sir Don Ryder, prepares. a report for Mr Wedgwood Benn, Secretary of State for Industry, on what further financial support may be required to safeguard the company’s longer term investment. The findings will be crucial in determining the size of the state shareholding, which is to be a condition of assistance under the Industry Act.
Mr Benn will announce soon the names of the other members of the inquiry team; they are to include some members of the departments industrial advisory board, which is headed by Mr Robert Clark, a merchant banker, and includes Sir Raymond Brookes and Mr Adrian Cadbury. Whitehall sources suggested yesterday that up to £100m of special support may be required, but half of that could form a short term borrowing facility over and above present City funds.
Lord Stokes, the chairman of British Leyland, declined to make any comment yesterday before leaving for Cairo, where negotiations are taking place on the possibility of building an assembly plant to serve Arab markets. But Mr John Barber, executive deputy chairman and managing director, moved quickly to reassure the group’s 175,000 employees, distributors, shareholders and customers by describing some reports of the present difficulties as ‘far too alarmist ‘.
Britain’s biggest exporter, he said, had made no secret of its long-term capital investment needs and would welcome a satisfactory outcome of discussions taking place with the Government. Shareholders would be consulted at the appropriate time.
‘It is true that, like most other industrial companies in the United Kingdom, we are suffering from the effects of inflation and additionally, as a motor company, we are facing lower markets in the immediate future’, he said.
‘Inevitably this means that money is tight. But we anticipated the position way back in January and have been taking action to conserve cash all this year. For example, by restricting hiring we have reduced manpower by 10,000 people, largely by wastage.’
Mr Barber added that the external economic position was not improving. The economy campaign had been intensified. ‘We have no plans for large scale redundancies or plant closures unless the position deteriorates’, he said.
‘We do not have excess stocks. In fact, we have no stock of finished vehicles other than those normally awaiting dispatch, and some cars are held up temporarily by the Triumph strike. Our distributors and dealers generally have adequate stocks of most of our models. ‘
‘Today’s announcement makes no immediate difference to the day-to-day operation of the corporation. Whatever money might become available, we shall not be relaxing pressure on costs to ensure that we are competitive in world markets.’
There were soothing words, too, from Sir Don Ryder, the newly appointed Cabinet adviser on industry and expected to be first chairman of the proposed National Enterprise Board. It was vital, he said, that Britain’s biggest exporter be sustained. The world car market was having a difficult time, but that was not a permanent state of affairs. He was infuriated by people speaking of industrial doom. It was unthinkable that Britain would just go to sleep and fall off the edge of the cliff. Nevertheless, Mr Benn and the inquiry team will have a hard time sorting out British Leyland’s requirements and maintaining confidence in the present management.
There is evidence that the Government was caught wrong-footed on Thursday (a long-standing appointment for an interview I arranged with Mr Benn for yesterday morning was cancelled the previous evening). For some time British Leyland and the Department of Industry have been holding regular meetings to review the company’s continuing difficulties. But all suggestions of special aid have drawn bitter denials.
Only recently Lord Stokes dismissed such talk as ‘ foolish chatter ‘, but the City took more notice when the financial director, Mr Alec Park, said that up to £70m was needed to safe-guard future investment plans.
Earlier this year British Leyland decided to stretch out its £500m capital programme over seven years instead of the original five. Trade union leaders have been co-operating in a programme of the utmost economy although labour troubles have continued. The group, which made a loss in the first half of the present financial year of £16.6m was badly affected by the three-day week. Now the worsening prospect for car sales, affecting all world manufacturers, have made necessary a fresh look at financial resources, and the falling ratio of self-financing to borrowings.
There are difficulties in overseas operations, such as in South Africa and Australia. A Spanish plant was sold recently to General Motors. Since British Leyland was formed in 1968 with a Labour Government’s guiding hand and some help from the former Industrial Reorganization Corporation, the group has sold about £7,000m of vehicles, about half overseas.
The heavy fixed costs of motor manufacturing require certain minimum levels of output at the 59 factories in Britain. Mr Benn’s inquiry team will need to pay close attention to a deteriorating marketing situation in establishing cash requirements for next year and beyond. There is a close relationship between home production and export pricing, and the top management may favour some import restrictions if sales drop badly and stocks begin to rise. Over the past year several senior managers have left British Leyland and there were some important departures from the board room before the elevation last autumn of Mr Barber to deputy chairman.
Although they are not saying it publicly, many ministers believe that British Leyland must come under majority state control and have its financing put on a more assured base. Mr Benn will outline the terms of his Industry Act soon, with provisions for state equity holdings and the early establishment of the National Enterprise Board to manage such holdings.
For his part, Mr Barber is not opposed to a state shareholding. He told The Times in July: ‘I do not object in principle so long as it does not involve us in interference and does not prejudice our ability to provide employment, make motor cars, and compete effectively with the Europeans and Japanese.’
British Leyland is due to reveal its latest financial position on December 18, when the full financial year’s results will be given. An overall loss is expected, in spite of a modest surplus in the second half to the end of October. The corporation has lost more than £70m of production through strikes this year. The Government has apparently been told that one immediate investment which needs safeguarding is the £60m scheme for a new factory for Rover-Triumph, which is seen as a bigger contributor to profits.
It is the first important plant to be built since the group was put together by merging Leyland Motors with the British Motor Corporation which includes the Austin and Morris divisions. Several new models are due to be introduced next year, demanding heavy promotional spending as well as the necessary expensive stockbuilding. Co-operation with the Government is nothing new to British Leyland, which received some years ago £10m in loans to finance machine tool purchases.
It is also involved in the joint venture at Workington, Cumbria, producing the Leyland- National bus in collaboration with the nationalized National Bus Company.
Sir Don, interviewed yesterday on the BBC 2 Newsday programme said, of Mr Benn’s reference to a measure of nationalization that he did not think it meant that British Leyland would be fully nationalized.
‘I do not think it means that, it does not mean that necessarily ‘, he said.
‘It could mean a stake in British Leyland of a size we do not know yet.’
He was asked: ‘But government control? ‘ and replied: ‘It could well be, or it could be less than control.’
He added that it was his intention to start work, as the Government’s industrial adviser, soon after 7 am each day. ‘That is going to shake them in Whitehall a bit’, Robin Day, the interviewer, said.