The profitability of car manufacturing in the UK has always been a challenge for carmakers. We explore this age-old problem, examining contemporary figures aided by a healthy dose of hindsight.
Here, regular AROnline Contributors Ian Nicholls and Chris Cowin look at the data on profitability and discuss how Britain’s car industry of the 1960s became, in many ways, a victim of circumstances beyond its control.
The bottom line – why it’s important to keep your eye on it
Building cars in Britain had become an increasingly unprofitable business by the late 1960s. An industry that started the post-War era strides ahead of continental competitors (not to mention Japan) found itself on the backfoot. Despite a wave of mergers intended to improve efficiency, profit was increasingly elusive. If you think BMC had problems, take a look at the abysmal profit record of Rootes (later Chrysler UK) and Vauxhall in the late 1960s and early ‘70s, both of them were awash with red ink.
Failure feeds on failure and, as low profits led to cuts in investment, the chances of Britain’s car-makers being able to build their way out of trouble faded. Dreadful industrial relations, sparked in part by the same difficult economic context that saw zero growth in demand for new cars, sealed the fate of the industry. It came close to total collapse in the mid 1970s, with British Leyland and Chrysler UK becoming ‘lame ducks’ supported by the state from 1975, while Ford and Vauxhall hollowed out their UK operations, becoming increasingly reliant on imports from the continent while running down exports.
Which was the best UK-based vehicle manufacturer? Which was the biggest and most profitable?
And which was the most efficient? We start with a general overview of the UK motor industry as a whole, with ‘vehicle production’ including both cars and commercial vehicles.
Though West Germany had overtaken Britain by 1960, UK vehicle production was comparable with France throughout the 1960s. However, France began to comfortably overhaul Britain from 1969, producing some 3,328,000 units in 1972. Of this total, some 1,309,000 French vehicles were exported, around 39%, with most of them going to EEC partner countries.
UK production data of the era reflects as much as anything frequent credit squeezes and tax hikes inflicted on the population by Government Ministers who claimed to have the best interests of the people at heart. Senior Standard-Triumph, British Leyland and Talbot executive George Turnbull later commented:
‘In those days [the motor industry] was just a […] fiscal regulator. If the economy was overheated, put some more Purchase Tax on motor cars… The Government was totally oblivious and if I was ever going to apportion blame for the parlous state that the British motor industry got into, you have got to put it at the door of the Government. I don’t care which complexion or which colour…
‘The reality is that they didn’t handle the industry in a sensitive way. It was the main primer for so many service industries; it was the main employer of labour; it was the biggest manufacturing industry by a mile and they treated it with derision. There’s no other word for it… From virtually full employment, I had to sack 3000 men, which I did with great reluctance. It drove more and more men into militant unions for protection.’
The following number crunching exercise examines the fortunes of Britain’s car manufacturers. All profit figures given are pre-tax. We begin with the British Motor Corporation, formed on 31 March 1952, whose financial year ended each 31 July.
(The inflation adjustment expresses the historic unit profit/loss figures in 2018 terms)
The next set of figures are for the British Leyland Motor Corporation and are less precise. The financial year for the Leyland Motor Corporation ended on 30 September, so for the merged BLMC, the 1967/68 figures covered a 14-month period.
Next we come to Ford of Britain. Was Uncle Henry’s UK outpost really more efficient than BMC and later British Leyland? Only the official data, provided to a Parliamentary enquiry in 1975 can really tell us:
In 1969, Ford of Britain exported a record 371,000 vehicles, some 48.34% of its production, an impressive achievement. The 1971 pay strike resulted in reduced exports of 248,000, but this figure was repeated the following year, suggesting a permanent loss of some export markets, and dipped slightly in 1973 to 247,000, a mere 32.95% of production.
Next under the microscope is General Motors’ UK operation: Vauxhall and Bedford:
Vauxhall/Bedford’s best year for exports was 1964 when it sold 154,531 units overseas, 43.7% of production. The nadir was 1972 when this had slumped to 67,410 or 24.51% of production, although this did recover to 73,464 in 1973 and 82,578 in 1974.
Finally, we come to Rootes/Chrysler UK:
What was the problem?
Home market low growth and volatile
In simple terms, the UK car industry found itself with serious over-capacity in the 1960s. Expecting the market to keep growing strongly (as other European countries did) during the decade, and anticipating EEC entry bringing new export opportunities, the car industry added a huge amount of capacity in the early 1960s – most notably, Halewood (Ford), Linwood (Rootes), Ellesmere Port (Vauxhall) and BMC’s CAB2 at Longbridge.
This gave the industry the ability to produce more than 2.5 million cars per year. But export prospects to the EEC were curtailed by the 1963 veto and (related to that) the UK economy found itself in the doldrums from 1964 with frequent ‘balance of payments crises’ which were countered by deflationary measures including the credit controls detailed below. The result was a static UK car market of only approx. 1 million units annually during 1965-69, with new registrations for 1969 being less than 1964.
That alone goes a long way to explaining poor industry profitability. Greater exports might have allowed the industry to compensate (although export sales tended to be less profitable than home sales) but, as explored below, circumstances didn’t favour exports which were broadly flat through the Sixties until the devaluation of Sterling (in November 1967) fuelled a surge at the end of the decade. As seen on the graph below, the strong growth in car production witnessed during the Fifties gave way to stagnation from 1964 onwards, and decline after 1972.
The ‘export ratio’ (percentage of cars exported) slumped in the 1960s while barriers encountered overseas ensured a high proportion (over 40% in 1968) of those exports were CKD kits, which often had considerably reduced ‘UK content’ compared to cars exported in built-up form, and less profit potential. The export surge of 1968/69 proved short-lived and, despite the over-heated home market of 1972/73 UK car production (as opposed to ‘vehicle production’), never did break through the two million unit barrier.
It never has, although for the record the more recent peak of 2016 saw 1.72 million cars manufactured in the UK of which 1.35 million were exported, by an industry that has largely re-invented itself since the period discussed here.
A chronological list of those damaging credit squeezes and other events
- 1952: Hire Purchase restricted for the first time
- 1954: Hire Purchase restrictions abolished
- 1955: Hire Purchase raised twice
- 1956: Hire Purchase restrictions tightened. Suez war causes fuel shortages
- 1957: Hire Purchase restrictions tightened again. The Gold Coast gains independence as Ghana, as do Malaya and Singapore, beginning a period of rapid decolonisation and potential loss of markets for British goods
- 1958: Hire Purchase restrictions lifted
- 1960: Hire Purchase restrictions returned
- 1965: Hire Purchase restrictions tightened
- 1966: Hire Purchase restrictions tightened again
- 1967: Hire Purchase eased twice and then increased. Sterling is devalued
- 1968: Hire Purchase restrictions increased. Import duties begin to fall from 25%
- 1971: Hire Purchase restrictions abolished. Ford is strikebound for 9 weeks. Britain withdraws its forces east of Suez, marking the effective end of Empire
- 1972: UK unemployment figures hit the 1 million mark. The Government responds with a splurge of public spending known to posterity as the ‘Barber Boom’. UK car sales expand by 27.38%, but British car production only increases by 3.32%. With import duties down to 11%, imported cars account for 450,314 sales
- 1973: Britain joins the Common Market, the OPEC oil producers increase the price of oil sparking an economic slump and Hire Purchase restrictions return
- 1974: The ‘Three-Day Week’ at the start of the year lasted over two months and resulted in the UK motor industry working at an unprofitable 60% of capacity
It’s been shown countless times (most notably by Germany) that a strong home market is key to a strong car industry, but the UK car industry was stuck with a weak, zero growth home market. (In 1969 the German car market was twice the size of the UK). This led to poor profitability across the industry, weak investment storing up problems for the future, a bolstering in the strength of Ford of Germany and Opel relative to their UK counterparts which would have consequences in years to come, and industrial relations problems which the quote (above) from George Turnbull puts into context very well. It was an era that economists called the era of ‘Stop-Go’ and car factories were vacillating between periods of overtime and periods of layoff which were a fertile breeding ground for militancy.
It didn’t help that the ‘Regional Policy’ of the British Government had compelled car manufacturers to build most of that new capacity in far-flung locations in the interests of creating employment. BMC was not spared as, although CAB2 was permitted at Longbridge, a new truck factory was located at Bathgate in Scotland. British Leyland’s umbrella would cover not just that but also plants in South Wales and the Triumph plants on Merseyside which owed their existence to that ‘Regional Policy’…
These regional plants added to the costs of the industry, while the policy had the by-product of perpetuating inefficient production in older ,outdated factories (like Rover’s Lode Lane plant) in preference to being re-located. The regional plants proved prone to militancy and, with hindsight, the policy largely failed in its aim of creating jobs in the regions, as the ‘parachuting in’ of a huge car plant to an area with no car-making tradition tended to create skill shortages which choked off growth in other firms locally.
So, by the mid-1960s, the UK car industry found itself with too much capacity, scattered inefficiently across the map. They had built for a future which didn’t arrive. (BMC, for example, had assumed the UK economy (and car demand) would grow strongly during the Sixties while the EEC market would absorb many more British cars). Cue poor profitability.
Poor export footprint
There was a belief in Whitehall that restraining domestic demand for new cars would boost exports, by compelling British manufacturers to send more cars overseas, thus helping correct the trade deficits which were the subject of so much concern in the 1960s. But it didn’t work like that, as car industry bosses were at pains to point out. The export success of the German car industry was not gained by constricting home demand, if anything the opposite.
Perverse as it sounds, weak home sales could make exporting harder, because the consequent reduction in production volumes would lead to a loss of scale economies and raise the unit cost of each car built. This, in turn, would force a hike in the price required to break even in export markets, the result being a drop in export volume.
However, perhaps more importantly, exhortations to boost exports were futile if barriers stood in the way of supplying British cars to customers overseas, something that was increasingly true in the 1960s. At the start of the decade, British car bosses (notably BMC’s George Harriman) were quite clear they saw a need to pivot exports to the European market. They could see the Commonwealth slipping away and Europe was intended to substitute.
What happened (in broad terms) was that, as foreseen, the Commonwealth increasingly turned away from British cars, but barriers continued to stand in the way of sales to Europe. So, exports to Europe were either far less than planned (an example being the redundancy of BMC’s newly-expanded French Dealer Network) or produced little profit as tariffs had to be absorbed (an example being the Ford Cortina, sold essentially ‘at cost’ in EEC markets in the 1960s, which kept Dagenham busy while extra volume pushed down unit costs, but earned little profit directly).
The worsening industrial relations climate can be seen as a symptom of an industry in crisis rather than the cause, but strikes also increasingly hampered the efforts of car makers to boost overseas sales. Quality tended to suffer while supplies were often disrupted. Strikes within the car industry and its suppliers were not the only cause: the 1966 Seamens’ Strike was especially damaging for car exports.
Commonwealth: A diminishing asset
Most ‘Commonwealth’ exports went to the four countries of New Zealand (which remained ‘loyal’ through the 1960s) and Canada, Australia and South Africa (which, in fact, left the Commonwealth in 1960). Although surprisingly few British cars went to countries that appeared ‘red on the map’ before WW2 (when American cars, often Canadian assembled, were favoured) the immediate post-War years saw British cars dominating in many Commonwealth countries and the remaining colonial possessions.
However, Canada introduced restrictions then signed the ‘Auto Pact’ with the USA in 1965 which created a more integrated North American market for cars (which became a lot cheaper in Canada) thus eliminating much of the tariff advantage British cars had enjoyed. Australia and South Africa were keen to develop their own car industries rather than import from the mother country and introduced tariffs and quotas from the 1950s onwards. This resulted in nearly all cars of UK origin in those markets being locally assembled and beyond that locally manufactured, with the value of exports of cars and components from the UK on a downward trend.
Even New Zealand, though operating a tariff regime that favoured car imports from the UK (while encouraging their local assembly from CKD kits), applied quotas which limited volumes. Like the UK, they were concerned about their trade balance.
There were other reversals in the Commonwealth such as the loss of the Rhodesian market after 1965 and import barriers erected by newly-independent nations, the Commonwealth being essentially a diminishing asset for the UK car industry. It was a collection of nations engaged in gently (sometimes not so gently) loosening trading ties with Britain while forging new relationships, not least with Japan.
It’s worth mentioning the Land Rover saved the day to a degree, remaining a strong seller across the Commonwealth (and beyond) into the 1970s, despite (like many British vehicle exports) being plagued with issues like supply shortages caused by strikes and incomplete CKD kits. But as most Land Rovers were classed as commercial vehicles, they were not included in the figures for ‘car exports’ mentioned below.
In 1955, Britain exported 178,000 cars (complete and CKD kits) to the four leading Commonwealth nations listed above. In 1968, despite demand for new cars increasing substantially in all those countries, that figure had declined to 160,000.
A lot of that decline can be traced to the local content of cars built in Australia and South Africa rising beyond the threshold where kits of components still dispatched from the UK no longer counted as car exports. But another important aspect relates to the role Ford of Britain and GM’s Vauxhall played in the global supply plans of those American multinationals.
In the 1950s Ford of Britain had supplied the ‘compact’ four- and six-cylinder sedans to global markets like Australia, while Ford USA had supplied ‘big cars’. But once the USA developed their own ‘compacts’ there was a question mark over that. Very specifically Ford Australia (where the Zephyr Mk1 and Mk2 had been big sellers) decided to replace them in local assembly by the American Falcon in the early 1960s. That was a big blow for Ford UK and the Zephyr Mk3 sold in lower volumes in Australia (it was still available and assembled), but the Zephyr Mk4 was not available at all. In many other markets the Falcon took over and Ford of Britain found export opportunities globally for its (profitable) large car range evaporating, and the same happened for Vauxhall with the Velox/Cresta.
The whole point of Ford and General Motors owning a UK subsidiary, which in the 1950s at least could be defined as giving preferential access to Britain’s Commonwealth as well as Britain itself, was fast crumbling. They needed to focus more on Europe (which had been the initial ambition for Ford at least back in the 1920s). But continued trade barriers meant that although sales could be won, there was little profit in it.
USA: Fickle and challenging
In the late 1950s the United States was viewed as a market that could give Britain’s motor industry a strong third pillar of exports alongside the ‘drifting away’ Commonwealth and still-to-be exploited European continent. In 1959, 208,000 British cars (plus 6000 trucks) were exported to the USA. But the following years would bring disappointment as shipments plunged. The US car industry introduced those “compact” cars which were the death-knell for American sales of Zephyr/Zodiac (again) and also Vauxhall’s Victor while forcing BMC, Rootes and Standard-Triumph to become reliant almost totally on sports car sales.
The huge-scale economies of the US car industry drove down prices and made it hard to earn profits outside the sports car market (which was insulated from American competition by the need for European-scale components) and Britain concentrated on that sector, selling around one million sports cars to Americans during 1945-1982. Even unlikely players like Daimler got in on the act (with the SP250) while the Jaguar E-type accounted for the bulk of Brown’s Lane’s US volume in the 1960s (which had not been the plan).
However, attempts to break out beyond this bridgehead met with limited success. Volkswagen, with huge production volumes in Germany, had established an overwhelmingly dominant position in the American small car sector, and there was little profit to be gained in competing with them, though cars like the Austin America tried. Sports cars were a nice little earner (in the 1960s at least) but there were limits to how many America could absorb, especially as the Vietnam War made finance companies reluctant to grant auto-loans to young men eligible for the draft (a huge number) because, if drafted, they were legally entitled to suspend repayments until their (hopeful) return from the battle zone.
From the late-1960s Japanese cars squeezed British models in the American sports and sub-compact fields (as they were soon doing around the world, in many fields). As mentioned above, prevailing prices in the United States were a lot lower than in Britain, leaving little room for profit if competitive pricing was the aim. Three of Britain’s ‘Big Four’ car manufacturers were American-owned by the late-1960s, which had pros and cons in terms of sales to the USA (and Canada). Access to a vast distribution network allowed the Cortina to become a big dollar earner for Britain in the 1960s, but this business was cancelled with the stroke of a Detroit pen in 1970 when Ford USA replaced the Cortina with the domestically-produced Maverick (and Pinto).
Around one third of Hillman Avenger production went to North America in 1971 (where it was sold as the Plymouth Cricket) but, shortly afterwards, Chrysler USA concentrated on Mitsubishi for ‘tied imports’ of small cars. Vauxhall was shut out of the US market after 1962 (in favour of Opel) but ‘given’ Canada which became their biggest export market. However, Canadian exports were halted by GM in 1973, which was a hammer blow to Vauxhall’s hopes of continuing as a full-fledged British-based car manufacturer. (Vauxhalls were sold in Canada both as Vauxhalls and through a second GM channel as Epic (Viva) and Envoy (Victor). From 1970 only the HC Viva was available, sold as ‘Firenza (from GM)’. Unfortunately, engine problems led to a calamitous exit in 1973 which saw plans for both Canadian sales of FE Victor and the development of an HD Viva torpedoed.
There are other stories related to product quality and supply problems (due to strikes) behind those examples, but in general the US-based multinationals turned to their UK subsidiaries in response to short-term pressures and with a view to bolstering North American market share, rather than UK profitability. And it shows in the figures.
The combination of poor productivity, indifferent quality and strikes which became associated with UK production did Britain no favours when Ford, in particular, made sourcing decisions for the 1970s. The Capri (built at Halewood with easy access to the docks) would be sold in North America. But disillusioned with the awful strikes that had disrupted both its UK introduction and the 1970 introduction of Cortina Mk3, Ford sourced all Capris for North America from Ford of Germany. A big loss for Britain it turned out, as Americans bought around 500,000 Capris during the 1970s, comparable in number to all the cars British Leyland sold in the USA during that decade.
Meanwhile, bosses of Britain’s home-owned car industry sometimes seemed mesmerised by the potential of America. ‘Bird in the hand’ markets like New Zealand and Ireland (which combined bought more cars from Britain than the USA in 1970) were neglected as British Leyland in particular devoted huge resources to attempts to ‘make it in the States’. But it proved the graveyard of many ambitions with cars developed around perceived American requirements often failing dramatically (such as the Triumph Stag). By the Seventies the cost of doing business in North America was multiplying in line with emissions and safety regulations, while product recalls and the threat of product liability settlements chipped away further at any profit. Low margins meant a strengthening of Sterling against the US dollar (as occurred from 1978 onwards) which, in turn, led to big losses and a contraction of the business.
The conditions may not have been ideal, but the European continent had become Britain’s biggest export market by far at the end of the 1960s. Britain’s car manufacturers may have been handicapped by exclusion from the EEC, but they adapted to the situation through resort to continental assembly, while the European Free Trade Area (EFTA) markets proved good customers.
Nonetheless the UK industry was less well-placed than that of France, Germany or Italy to benefit from the rapid growth in European car demand of the Sixties, and much more exposed to tariff barriers which ate into the profitability of selling in Europe. Britain’s preferential access to EFTA markets (with 60 million consumers compared to the 200 million of the EEC) was seen as something of a ‘consolation prize’ after rejection by the EEC.
The tariff barriers associated with exporting to the EEC (which applied in reduced form to CKD kits) when combined with the high value of Sterling made selling ‘volume cars’ in EEC markets difficult. Rather than see this handicap lifted through EEC entry, the British car industry had to contend with it worsening as the Sixties progressed and the complex patchwork of EEC tariffs (internal and external) evolved.
BMC’s front-drive ‘Issigonis cars’ were developed at the dawn of the Sixties with an eye on the European market and were undoubtedly more European in conception than their predecessors. However, the Mini, 1100/1300 and 1800 had to be priced above European rivals within the EEC, and sales volumes were consequently constrained even though profits were marginal. Had BMC ended up with the wrong cars for their export footprint in the 1960s one might ask? Those complex, and not very robust front-drive models weren’t ideal for the Commonwealth or USA. Even BMC Australia, which valiantly adopted all three with some success in the 1960s, hurried to revert to rear-drive designs in the 1970s.
With Britain left on the outside of the EEC, the cloud over future prospects saw BMC for one leave most European sales in the hands of independent distributors who took their cut, reducing the profitability of the business further. Markets with huge potential, notably Germany, received little attention even from Jaguar. That was something which contemporary Mercedes-Benz executives commented on with bemusement…
But devaluation of the pound in late 1967 (exchange rates were fixed in those days) eased the situation, with BMC able to advertise ‘new cars (the Mk2 Mini and 1100) at lower prices’. Ford of Britain was also still a major exporter to Europe in competition with Ford of Germany (Ford called that the ‘two fishing lines approach’) and BMC/BLMC together with Ford were the key drivers of a surge in car exports to Europe.
For 1968 433,000 British cars were exported to all European markets which compared to 200,000 sent to the Commonwealth (all countries) and 110,000 to the USA. However, although strong by the standards of previous years, Britain was still left lagging behind the intra-European export performance of Europe’s three other major car producing nations. All three of them exported more cars within Europe than the UK even in 1968, and the gulf would widen as British car exports (to Europe and the world) contracted in the 1970s.
France, Italy and Germany all imported over 20% of their cars in 1968, mostly from each other, while selling strongly in the three smaller markets of the EEC and in Europe beyond. In very broad terms the hope of British motor industry bosses was to convert this ‘game of three’ into a ‘game of four’. They failed to do so despite the encouraging surge of 1968/69 and continued poor profitability was a consequence. Continued strike disruption was one reason, the overheated domestic market of the early 1970s another.
Britain’s import penetration (still just 8.3% in 1968) was likely to increase irrespective of EEC entry. Britain (which applied a highly protectionist 25% tariff to car imports as late as 1968) was committed to reducing tariffs under the global GATT process, as it indeed did, to 11% by 1972. A strong European export trade could have helped balance the expected rise in imports, but the failure to build one left the industry condemned to low volumes and low profits once the UK market contracted after 1973, with imports both from the EEC and Japan on the rise.
EEC entry when eventually achieved in 1973 (above) came when the unfavourable circumstances of the 1960s had put Ford of Germany and Opel in a stronger position than their UK counterparts, and the falling of barriers no doubt hastened the consolidation of production for Europe, at the expense of the UK operations (though not necessarily the UK consumer). There’s not a great deal of point in analysing the profitability of Ford of Britain and Vauxhall after 1975, because those figures are distorted more and more by the profitability of retailing (increasingly imported) vehicles in the UK market, which makes comparisons with the 1960s difficult.
Ford of Britain halted most exports of cars to Europe in 1974, but Vauxhall continued to export to the European continent (in diminishing volumes) until 1981, partly through ‘inertia’ as much as anything. By the end, many of the Vauxhall-badged cars sold on the continent (which included even the Carlton and Royale) were manufactured by Opel in any case.
The product range of Chrysler UK was of limited appeal to Europeans by the 1970s and, despite distribution improving through access to the Simca network (as mentioned in the advert below), exports to Europe remained modest, concentrated on Avenger and later the Sunbeam hatchback. Meanwhile, British Leyland failed to repeat the European success of the Mini with larger (and more profitable) models, with exports to Europe lower at the end of the 1970s than the start and still heavily dependent on Mini.
For British Leyland, one can say that, having lobbied long for a level playing field, once they got it, they got slaughtered on the pitch – at least in the 1970s. All the well-documented issues of deficient products (notably the Allegro) and strikes prevented BL from benefiting from EEC entry, confounding the optimism of the 1975 Ryder Plan which predicted a mushrooming in exports to Europe, as had earlier forecasts made by BLMC. A company that had been among the region’s strongest in the early Sixties when it hoped to gain unrestricted access to Europe had been fatally weakened by the Seventies when it eventually did.
However, once the company got its act together, EEC membership became a definite boon for BL. Without it the Honda partnership would not have made sense. With unfettered access, the Honda Rovers sold very well in the EEC and the export ratio of Austin Rover/Rover cars climbed from a miserable 20% in the early 1980s to more than 40% through the 1990s, keeping Cowley and Longbridge busy.
Any discussion of the profitability of the British car industry in the 1960s and ‘70s has to come with several ‘health warnings’ attached. All four of the companies whose results are quoted at the head of this article were also major players in the commercial vehicle business, which clouds the issue as does the inclusion of other non-automotive businesses (such as BMC’s Prestcold division). Individual years may be distorted by exceptional charges, while two (later three) of the companies concerned were subsidiaries of multinationals which had some ability (through transfer pricing) to shift profit between tax jurisdictions. Why post profit in the high-tax United Kingdom if that can be (legally) avoided?
In the 1970s especially, currency fluctuations had a huge role to play in both flattering and flattening profits. British Leyland would appear to be doing okay during 1976/77 but a weak pound, making exports more profitable, was masking its difficulties. Moreover, just as profitability is influenced by almost everything, so discussion of profitability can lapse into a tour d’horizon of almost everything going on in the motor industry, which isn’t especially helpful. It’s probably worth emphasising that profit was not a ‘nice to have’, to be creamed off for the benefit of shareholders (although some was). It was essential to fund the development of future products and renew plant and machinery. With the exception of Ford (where product development had anyway become pan-European under Ford of Europe by the 1970s) the British car industry was not earning enough profit to secure its future in the late 1960s and into the ’70s.
Academics who have studied the British car industry point to excessive fragmentation with production spread between too many models, both within BMC/BLMC and across the board, having a negative impact on overall profitability. Some see this as a consequence of a protected market, with the British industry attempting to fill every niche of domestic demand and with cost inefficiencies masked due to the effective exclusion of foreign competition. It’s no accident that British Leyland was under huge pressure to prune the model line-up in its early years, with many advisers convinced the more streamlined range of Ford was the model to follow. But there were conflicting pressures. Ford operated under the mantra of ‘making profits, not cars’ which many observers, then and now, would feel inappropriate for Britain’s ‘national champion’ of British Leyland, with all its many marques.
Despite gestures to reduce model proliferation, British Leyland’s Austin-Morris division (for a host of reasons familiar to readers of AROnline) still fielded four largely unrelated medium cars in the 1970s (Allegro, Marina, Maxi, Princess) when international rivals like Peugeot and Volkswagen covered the same ground with two core designs – that was clearly a negative for profitability.
The industry problem
There are macro issues to consider: a wholescale thinning out of the industry could have helped profitability. That was a policy pursued by the Australian Government in the early 1970s in recognition of excess fragmentation of their car industry, and was a factor in Leyland Australia’s retreat from volume manufacturing in 1974. But that was unlikely to happen while the British Government, concerned over employment and the trade balance, intervened to prevent collapse, for a while (from 1975) subsidising two companies (British Leyland and Chrysler UK) which competed with each other.
In prior years Chrysler, like General Motors and Ford to a degree, had preferred to bear the indifferent profitability of its UK arm rather than cede ground to one of its Detroit rivals. With the four major players all having powerful ‘backers’, circumstances didn’t favour the rationalisation that might otherwise have occurred in the context of poor industry profitability.
With the benefit of hindsight, the pieces could have been arranged better in the 1960s. A merged BMC-Rootes (as mooted at one point) could have seen the Rootes rear-drive cars doing battle with Ford and Vauxhall while Austin-Morris concentrated on their front-drive strengths. The Marina and potentially other models would not have been needed. Meanwhile, a separate Triumph/Rover (and Jaguar) combine could have bettered BMW and become an export star. The resulting industry would have had less foreign ownership, and the potential to build fewer individual models in greater overall volume – that really would have been a positive for profitability.
And there are more micro issues: it would be rash to ignore the role of individual products in influencing profitability, and there’s little doubt that, whatever the overall circumstances, profitability at BMC could have been better if the Austin 1800 had been a little better conceived and executed. And the same can be said for Rootes and the Hillman Imp. Both became millstones which dragged their makers down. Jaguar might have made a lot more profit in America if the Mk X had been a hit instead of a flop.
And the UK problem
Another peculiarity of the UK car market was the large fleet sector, growing fast during the period in question. What role did that play in depressing profitability? Everybody had to match the aggressive pricing of fleet champion Ford, usually without the benefit of the huge production volumes which, combined with down-to-a-price engineering, made Cortina (especially) cheap to build.
The whole issue is fiendishly complex, with many moving parts. Suffice to say there were many reasons for the low profit warning light to have been flashing in the 1960s and early ‘70s. But if one had to boil them down, the essential problem was that not enough cars were being built.
Healthy volumes tend to lead to healthy profits, both overall and in the case of individual models such as the Mini where a high breakeven volume can be identified, below which it was generating losses.
With the dreaded ‘balance of payments constraint’ forcing the British Government to curtail domestic demand as the country stumbled from Sterling crisis to Sterling crisis, those volumes were not to be found on the home market in the 1960s, leaving British car bosses to gaze on enviously as their continental rivals saw demand expand strongly. The industry’s attempts to compensate with exports were held back by the barriers British products increasingly faced in export markets. Those were, of course, the very barriers which lay at the root of the ‘balance of payments constraint’ in the first place – it was a vicious circle.
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