It’s been a long-held belief that building small cars was less profitable than large ones. However, as Chris Cowin explains, things are never that straightforward.
Making the Mini pay for British Leyland
As sure as night follows day, any discussion about the long-running Mini invariably leads to the comment: ‘It never made money.’ Something supposedly symbolic of amateurism and incompetence within the British Motor Corporation (BMC) and later British Leyland. In this essay, I come to its defence, arguing the ‘big picture’ is the one to look at.
That picture includes the role of Mini production in cross-subsidising other models, its role in attracting first-time buyers, its role in supporting a broad Dealer Network (especially in Europe), and even its role in generating profitable demand for replacement parts. Analysing the profitability of Mini production in isolation is fraught with difficulty, and misses most of those phenomena. Only the company ‘bottom line’ captured them all, and that’s the profit figure that mattered.
Don’t worry, though, this isn’t going to be an extrapolation of financial spreadsheets. It’s important to understand how revenue earned from selling Minis compared to the cost of production but, as outlined in the first paragraph, that’s far from being the end of the story. Let’s start, then, by summarising opinion (and people have been expressing opinions for over sixty years) on the profitability of Mini production calculated in the conventional manner.
As we are always reminded, a ‘strip-down’ analysis of the new Austin Seven/Morris Mini Minor was conducted by Ford shortly after their launch and concluded BMC had to be losing money on their sale. Terence Beckett of Ford of Great Britain quantified that loss at around £30 per car, which in 1960 was equivalent to 6% of the retail price. The complexity of the novel car’s design and its labour intensive assembly would seem to rule out the ‘cheapest car on the market’ pricing BMC had adopted.
Scaling up: the route to profitability
However, economies of scale played an important role in driving down production costs in the car industry, with economists calculating car makers would see a rapid decrease in cost per unit as production ramped up to 200,000 cars annually, followed by a continued, but more gradual, reduction as production increased beyond that. More efficient ‘process flow’, as it was called, was the main reason.
This was clearly understood by those in charge at BMC who always planned for Mini production to substantially exceed 200,000 units per year. However, when Ford conducted its analysis, the Mini (which had a slow start) was still a relatively low-volume car, being sold cheaply. 1960 production volume of just 116,000 cars would more than double by 1963, by which time Mini would be joined by the BMC 1100 (ADO16) in a front-drive ‘family’ that was soon racking up production figures of approx. 500,000 units annually, which even Ford found hard to match. That altered the numbers.
Ford remained sceptical about small cars. When ‘superminis’ like the Fiat 127 appeared a decade later spokesmen claimed the sector could not be profitable (for them), and it was 1976 before Ford’s Fiesta belatedly joined the pack. Ford was almost certainly right: Mini production was losing money for BMC in that early period, but so it should have been one can argue.
Mini: cornerstone of a new market
Revealingly, BMC described its business in Annual Reports of the early 1960s as divided into several distinct sectors. One was the manufacturing of cars (under the various marques). Another, separate sector, was listed as the manufacture of ‘Austin and Morris Mini-cars’. The Mini was viewed as the foundation-stone of a whole new market segment, lowering the bar to vehicle ownership with a credible British built machine. To expect profits immediately would be short-sighted (as Tesla has demonstrated more recently).
What mattered was establishing a dominant position so future rivals (like the Hillman Imp) could be seen off and high production volumes assured. When you’re trying to establish yourself, you don’t price for short-term profit. The strategy worked. After a subdued start Mini production took off, with most cars going to the home market where the car became a best-seller, helped by the endorsement of celebrities such as Lord Snowdon.
The popular van boosted output and (through avoidance of tax) established an even lower rung on the ‘motorisation’ ladder. BMC Chairman George Harriman was in no doubt that volumes were key to profitability stating in 1963 ‘we now depend more than ever on the economies of scale.’ And so they did, for by that time the scale-sensitive Mini and 1100 together accounted for 73% of BMC’s total car output, with almost 12,000 of the duo being built in some weeks. That would have been a disaster if those cars (or even just the Mini) were losing the company money.
The cream triangle
Instead, BMC’s financial results improved and continued to do so the more front-drive cars that were built. A £21 million profit before tax recorded in 1963/64 was the best for five years and bettered the following year (£23 million in 1964/65) which correlated with an increase in Mini and 1100 output. For the front-drive range (which BMC by then tended to view as a parcel) increased production appeared to translate to higher profit margins per car, and cumulatively.
This ‘sweet spot’ which Harriman described rather charmingly as ‘the cream triangle’ (the best bit of a custard cream biscuit) depended on high volumes being maintained and preferably expanded. As the Sixties progressed, BMC would find that difficult, and that’s when many of their problems began. It’s thus possible to say the company’s woes came from building not enough front-drive cars (including Minis), rather than building too many.
The Mini was undoubtedly conceived with an eye to export opportunities in Europe but, with Britain not joining the EEC (as BMC had anticipated), sales were restrained by tariffs. Of the first million front-drive cars built by BMC (mostly Minis) less than a third were exported and Alec Issigonis could state in 1968 that the Mini was ‘still to be exploited on the continent.’
Limits to growth
Assembly at Seneffe and Innocenti from 1965 helped but the Mini was largely dependent on the UK market in the mid-1960s and, when that stagnated (which it did), Mini production suffered. BMC’s car output (including kits for overseas assembly) fell sharply from 723,000 in their 1964/65 Financial Year to 557,000 in 1966/67 with the Mini and 1100 taking a lot of that hit. The “Mk2” revisions to both took a long time coming, which didn’t help. This fall in volume correlated with a dramatic deterioration in company profitability. Other parts of BMC did well in good years and badly in bad years, so the correlation between output of the front-drive duo and company profitability is blurred, but it undoubtedly existed.
Expanding production volume was not, of course, the only way to improve the profitability of Mini. Another was the addition of higher margin variants, something BMC proved very adept at doing. There were the Super, the Cooper, the Traveller and Countryman and, if that wasn’t enough, the posh little Elf and Hornet. All of these lifted the ‘average transaction price’ as companies (like Ford) called it to levels considerably higher than the price of a basic Mini.
Even so, the consensus appears to be that ‘in a good year’ (as Donald Stokes would later put it) the Mini, when viewed in isolation, did little better than breakeven. Other figures from the 1960s and ’70s concur, painting a picture of Mini profitability sometimes marginally positive, sometimes marginally negative dependent on factors like production volume and variant mix.
But as British Leyland executive Mark Snowdon pointed out, calculating the profitability of an individual ‘carline’ must take into account corporate overheads not directly linked to the production of the model. Altering the methodology for allocating such overheads can push a car like Mini from profit to loss at the stroke of an Accountant’s pen – that is one reason a ‘big picture’ approach is more meaningful.
British Leyland attempted to take cost out of the Mini (by reverting to rubber cone suspension for example), concentrating UK production on Longbridge and pricing more ambitiously, but the Mini was never viewed as a ‘money spinner’ despite being the car the company was building in the highest volume in the early Seventies.
Cross-subsidisation, BMC style
There’s more to it than that, though. As already mentioned, BMC preferred to treat the front-drive cars as a team, with component sharing between Mini and 1100 supporting that approach. Estimates for the percentage of components shared between those two models vary, with some sources quoting 30%. It depends upon whether you look at the number of shared part numbers, or the value of a completed car accounted for by shared components.
But it’s indisputable Mini and 1100 shared the A-Series engine (in differing capacities) together with a magnesium alloy sump. Both used Birfield-Rzeppa constant velocity joints to channel power to the front wheels, and much else. Even if it was just through giving BMC’s purchasing agents more leverage, this sharing of components would have let Mini production reduce the unit cost of each 1100 built in parallel.
With the breakeven Mini acting as a helpful flanker, it was the 1100 range that was scoring for BMC in the profit stakes, the two best seen as a team (as former Rugby player Harriman understood). And the ‘cross-subsidisation’ effect did not end there. The A-Series engine, to take the most obvious example, was also found in the Minor, A40, Midget and Sprite (and A35 van).
More economies of scale
Engine production is especially sensitive to economies of scale, with conventional wisdom in the Sixties suggesting the unit cost of each engine block kept on diminishing until 500,000 engines were produced annually.
The Mini allowed BMC to achieve that ‘optimal’ level of output on the A-Series and therefore the production cost of all cars that used it should have fallen. All else being equal, those cars should have been more profitable for BMC, than if Mini had not existed (although ‘cannibalisation’ of Minor and A40 sales volume by the Mini would offset this).
This cross-subsidisation of the production cost of other models in the range continued into the Seventies, with the A-Series appearing in Marina and Allegro.
Catch them young
The Mini was much more than just a car. Nearly everybody, and especially the young, wanted to own a Mini in the 1960s, the decade of which it became an icon. This appeal can be linked, if you wish, to the brilliance of a design which, if subject to tighter cost constraints, could have turned out a lot more dull.
But the upside was a stream of young new customers who, once ‘in the system’ were likely to trade up to another BMC car when the time came. Meanwhile, the growing number of two-car households could source both ‘little and large’ from their Austin or Morris dealership, more satisfactorily than from Ford or Vauxhall, and fleet buyers were offered a spectrum of BMC products that now started lower (as well as finishing higher) than the ranges of those two rivals.
For all these reasons, Dealers were keen on the Mini. Showroom traffic was up, BMC’s once stodgy image enjoyed a fillip, sales of other models benefited by association with Mini and profits somewhere would have benefited – even if those profits were not assigned to the Mini directly.
The Mini’s appeal was not confined to Britain. Although its European heyday did not come until the Seventies, it proved a hit in Australia in earlier days, the ‘Morris 850’ being the second best-selling car on the market (after Holden) for 1963. BMC Australia concentrated all its car manufacturing on just three models from 1965: the Mini, 1100 and 1800 – some may see that as a recipe for disaster but, in fact, the late Sixties saw BMC Australia enjoy a good run financially and that makes you wonder…
Many other countries around the world saw BMC doing good business with the Mini. But it would be the European continent that took the lion’s share of overseas Minis, the car carving out a market position which could have been a springboard to much greater things.
Devaluation of the pound in late 1967 and gradual erosion of tariff barriers, coupled with a network of three assembly plants on the European continent and a more focused sales approach, helped Mini rise up the best-sellers charts. British Leyland saw sales climb to around 250,000 cars in Europe in 1971 and 1972, the majority being Minis. Many more could have been sold if they were available it was claimed. As it was, UK production surpassed 300,000 Minis in both 1971 and 1972, that figure including the kits sent for assembly in Belgium and Italy.
British Leyland’s growth ambitions
British Leyland was starting from behind in the continental car market, but had aspirations to gain a position roughly comparable to Fiat, Renault or Volkswagen, with domestic sales as good as doubled by sales to European neighbours. The Mini may not have been earning much profit in Europe, but it had established just such a ratio. And with Mini as the ‘bottom rung on the ladder’, that would have been an encouraging sign for the future.
In contrast to the UK, the 1100/1300 range had never really caught on in Europe outside Belgium, Denmark and the Netherlands. In France, for example, five Minis were sold for each 1100/1300. But its replacement the Allegro, designed specifically as Leyland’s ‘song for Europe’ and granted free market access, was expected to do much better.
The vast pool of Mini owners which existed on the European continent by 1974 might be expected to trade up to an Austin Allegro and, beyond that, to something bigger. It seems a good moment to mention Honda’s experience in the USA, where the initial success of Civic created a pool of happy owners who traded up to an Accord, before becoming older and richer and buying an Acura, with Honda becoming one of the biggest brands on the market.
Europe fails to take notice
That didn’t happen for Leyland in Europe, despite Allegro being enthusiastically promoted as ‘the big Mini’ in France and elsewhere. The market contracted in recessionary 1974/75 which saw Fiat, Renault, Volkswagen and others discounting to maintain volume, the Japanese wanted their share of the pie, and the Allegro wasn’t really up to the job. But that wasn’t the fault of the Mini which had done well to prepare the ground. A task which, if Leyland had succeeded in reaching the sunlit uplands of over 500,000 continental sales annually (which remained the optimistic objective of the 1975 Ryder Report) would have entitled the Mini to a medal – profit or no profit.
Hang on in there
Rather than underpin the hoped for doubling or tripling of sales on the European continent, the Mini continued in its traditional role as the ‘volume’ model in the range, alongside a fragmented assortment of other cars. In France, for example, around 30,000 cars were sold annually by Leyland in the 1970s, but three quarters were Minis. This heavy dependence on the Mini was bad news for profits. The Mini was ageing by this time, and tended to be ‘priced to sell’.
Although Leyland had established control of importers in many countries (under BMC independent distributors had taken their cut of any profits) the Mini was essentially being sold at cost. As John Barber was on the record as saying (a little cynically), any profit came from the supply of spare parts. But the Mini was giving dealers a ‘base volume’ which allowed them to stay with the franchise and, in turn, gave other more profitable models in the Leyland range a distribution network. You could find a Rover or Triumph fairly easily across Europe because most large towns had a Leyland dealer, supported by the Mini.
Moreover, if the company was planning a new generation of cars to conquest European customers in the 1980s (and it was) there was an important strategic need to keep that distribution network as intact as possible. The Mini helped do that, with many continental Minis being rather different models such as the 1100 Special assembled at Seneffe, and the Innocenti 90/120 hatchbacks also playing a role. (Although Leyland sold Innocenti in 1976, the kits of mechanical components exported to Italy were counted within Leyland’s Mini production. In Italy, Innocenti had its own distribution, but in seven other countries they were sold by BL dealers).
So the Mini was delivering, even if it wasn’t delivering much profit directly. When BL introduced the Metro and Acclaim (which sold well in Europe) in the early Eighties, they still had a Dealer Network across the continent to sell them through.
On the other hand
By cross-subsidising other models, attracting customers to the franchise and underpinning the Dealer Network, especially in Europe, the Mini was a strong team player. Even if it wasn’t making much money directly, its existence was benefiting the company ‘in the round’. And that suggests one should treat its profitability with more generosity than some unrelated business venture (such as building refrigerators, which BMC/BL also did).
That said, some will make the counter-argument that building the Mini in such huge volumes for all those years represented a huge ‘opportunity cost’ for BMC and later British Leyland. Another design, better costed from the start, could have done everything the Mini did while being less expensive to build (and having lower warranty costs). All the resources tied up in building the Mini could have been put to better, more profitable use (which was an argument Terence Beckett made).
Quite possibly… It’s often said Alec Issigonis learnt a great deal about cost-engineering during the Sixties and, by the end of that decade, proposed the BMC 9X as a Mini replacement. It was a much simpler package, dispensing with subframes and reverting to simple coil springs.
However, if the Mini had been much more austere from the start, would it have sold so well and won so many hearts? Perhaps the Mini’s secret was also its failing: it was a quality product, over-engineered and uncompromisingly engineered, of a type Ford (and others) would never have let leave their factories. Buyers of small, cheap cars (especially in the 1960s) still half-expected to find themselves in a vehicle that was ‘tinny’ or a ‘death-trap’. But the Mini was neither of those. It was a robust little brick.
It gave buyers more than they bargained for with interior space of a larger car and handling of a sports model – tremendous value in a unique package, which would keep attracting customers for four decades. In its later years, marketed as a more premium ‘retro’ model in smaller volumes, it was claimed to be profitable and could keep on adding sparkle to the Rover range.
It takes a special kind of car to achieve all that, and the Mini was special, not least because it wasn’t really engineered down to a price. In the modern era, when it’s become common practice for ‘entry-level’ cars to make little profit, we should think twice before judging the Mini too harshly.