By Our Financial Editor
In its largest single asset disposal to date, British Leyland is selling its Spanish car manufacturing business to General Motors for £26.7m in cash. British Leyland now owns 98.3 per cent of Automoviles de Turismo Hispano Ingleses. This has plants in Los Carrales, Pamplona and Sampedor and makes Mini and Victoria cars in Spain with a high degree of local content, including engines.
Only a year ago British Leyland, whose involvement in Spain was inherited from the old British Motor Holdings business, increased its holding in AUTHI from 50 per cent to 97.2 per cent. It paid about £4m to Spanish investors for the extra 47.2 per cent. That same interest is now being valued at nearly £13m. Until just before Christmas when General Motors, the world’s largest vehicle manufacturer, saw the AUTHI acquisition as a way into the Spanish market and approached British Leyland with the offer, British Leyland had firm intentions of expanding its Spanish interests.
The deal, disclosed yesterday, is subject to Spanish Government approval and final sale and purchase agreements being signed between the two companies. It will allow British Leyland to continue marketing in Spain the Mini and Victoria cars which will be manufactured under contract by GM at existing AUTHI plants.
Net assets of the AUTHI business are put at £17.6m, and latest published results up to the end of September last year show that the company was still losing money, a loss of £2.2m was reported for the 1972-73 period. For British Leyland, still going ahead with a five-year £500m spending programme of which £100m is earmarked for the current year, the £26.7m from AUTHI is undoubtedly a useful windfall.
Although British Leyland had liquid assets of some £50m at the end of 1972-73, Mr John Barber, the corporation’s managing director, admitted recently that liquidity had deteriorated since the year-end under the impact of the three-day week. Capital spending this year is likely to be concentrated on improvement and modernization of existing British plants rather than expansion.
A shrewd manoeuvre by British Leyland
From all angles the proposed deal between British Leyland and the American owned General Motors Corporation for the sale of BLMC’s car assemnbly interests in Spain looks a wise move on the part of the British company. Not only does British Leyland free almost £27m of capital to pour into its huge expansion at home; it also maintains its hold in the booming Spanish car market with the agreement that GM continues to manufacture Mini and Victoria models.
The latter is the Spanish version for the home market only of BLMC’s 1100-1300 range. The big question in the motor industry last night, however, was for how long will GM’s contract to assemble British Leyland cars in Spain operate? The Americans were being particularly cautious and in London were saying only that the agreement had been reached in principle and that no details would be issued until the ink had dried on the contracts.
It is clear, however, that GM which operates in Europe with its Vauxhall and Opel subsidiaries in England and Germany, would be delighted to establish a foothold in Spain. With its purchase of all British Leyland’s shares in Automoviles de Turismo Hispano, S.A. (AUTHI) GM will be able to launch its own small car in Spain, possibly a version of one of the smaller Vauxhalls. British Leyland, on the other hand, will not miss the lost sales of the aging Victoria model, while a large proportion of the Spanish made Minis have been exported, particularly to countries like Switzerland and could be built elsewhere.
Last night, British Leyland said that production of its cars in Spain would be dependent on GM’s ability to “phase in an acceptable car” but that this would not be for a number of years. For British Leyland, the three AUTHI plants at Los Corrales, Pamplona and Sampedor, represent the smallest of its European operations. AUTHI last year produced 43,000 cars, of which 34,000 were for the home market.
The year before it exported 6,000 Minis to Switzerland. British Leyland has had a controlling interest in the company since 1969 and bought 98-3 per cent of AUTHI last year. Because of the stringent Spatish regulations on car imports, the AUTHI cars have comprised almost 100 per cent locally manufactured components. GM will have to maintain the same type of operation, although the cars will be distributed by a wholly owned British Leyland sales company.
With the Spanish car market booming-some observers estimate that Spain’s car makers will be producing well over 1 million units a year by 1980. British Leyland could be gambling on the possibility of Spain relaxing its import regulations, which could reduce the need for big manufacturing facilities.