Archive : Sale of BL plant may herald general outlay cut

By Hazel Duffy

British Leyland announced yesterday it is selling its holding in the important Spanish market to General Motors, the American company. The sale raises £26.7 million for British Leyland at a time when the City believes the group is in need of cash to finance its expansion programme.

The British Leyland move is being interpreted in the City as the first positive warning that the short working week and the overall state of the economy will force large parts of industry to trim its capital expenditure programmes. Many large companies announced huge expansion plans last year when corporate profits were at a peak. But the pressures on cash flow induced by the change in the economic situation and accelerated by working below capacity will undoubtedly lead companies which already have high levels of borrowing to abandon part of thes programmes. This will effectively stifle the capital spending boom which Britain has been waiting for in the past four years, and the country could find itself in the midst of a capital spending recession by the middle of next year.

Spain is one of the world’s fastest growing markets for cars and is also regarded as an important base from which to export to other parts of Europe. British Leyland had expressed its confidence in its Spanish subsidiary, which makes Mini and other saloon cars at three seperate plants, by incresing its share stake in the Spanish Authi company from 30 per cent to 97 per cent about a year ago. British Leyland cars will continue to be made in Spain by General Motors under contract, and these will be distributed by a British Leyland sales company.

Mr John Barber, managing director of British Leyland, said yesterday: “This is a mutually advantageous deal for General Motors and ourselves. It gives GM an entree into Spain with already existing plants and enables us to continue to build up increasing support for our dealer network through the new Leyland sales company.”

British Leyland’s five year expansion programme, announced last May, was thought to have included between £30 million and £40 million to be spent in Spain. The Authi subsidiary showed a loss of £2.2 million for the year that ended on September 30. The decision to sell out in Spain comes, however, at a time when other car manufacturers have been showing continued interest in the country.

British Leyland’s plants in Britain are now working at more than 60 per cent capacity. Lord Stokes, chairman of the firm, said a couple of weeks ago that they could obviously not make profits at this level of production. Some analysts believe the group could be losing £10 million a month since the three day week has been in force, and that the liquid surplus of £31 million shown in the balance sheet at the end of September could have been wiped out by now.

Keith Adams

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