On Thursday April 7th, suppliers pulled the plug on Britain’s last
remaining car company – they just stopped delivering. They had heard
that the joint venture with Shanghai Automative Industry Corporation
was not going ahead. On Friday April 15th SAIC confirmed the deal was
off.
This is not just bad news for the 6,000 workers directly employed at
Longbridge. 18,000 jobs in component supply are threatened. Nobody
knows how wide the ripples from the disaster may spread. 8,000 jobs in
Rover dealerships are also in the frame.
For the past four years MG Rover has been owned by the Phoenix
consortium, who bought the group for a nominal ten pounds. The Rover
crash may be a disaster for the workers, and for British manufacturing
industry, but the Phoenix four have emerged unscathed from the
wreckage. They have sucked at least £40 million out of the firm in the
past four years in pay and perks. Workers’ pensions may be in peril but
their inflated pay-offs are quite safe. Though the car company has been
making a loss for the past four years, the profitable bits – property
and MGR Capital, a joint venture car finance business with HBOS, have
been hived off to separate companies that won’t go down with the rest
of the business. And these separate firms are in the grubby hands of
John Towers and his three mates. The Phoenix four have gone very quiet
since the collapse. We wonder why?
There’s a terrible smell coming out of the Rover accounts
department. They seem to have mislaid £200 million. Or is it
£554million as the papers are now suggesting?
Let’s take the lower figure. BMW left the firm with £1.2 billion
four years ago. Since then Rover has made operating losses of £800
million. And Phoenix has spent £200 million on acquiring various
assets. What happened to the other £200 million?
The government is holding an enquiry to find out where it all went.
Isn’t that a bit late? New Labour, in particular Byers at the
Department of Trade and Industry, were the ones pushing the deal four
years ago. In 2000 MG Rover was finally abandoned by BMW, who bought it
in 1994. The firm was faced with two offers: Alchemy, who wanted to run
it as a specialist sports car company. This would inevitably have shed
most of the jobs. And Phoenix, who undertook to maintain volume car
production. As it happens, the MG sports car division is probably still
profitable on its own, and may be snapped up by another buyer.
The problem is it would cost about £1 billion to develop a new Rover
model. That money would presumably come from sales and profits. But
sales are down year on year – 116,000 in 2003 as against 145,000 in
2002. Break even point is 180,000 cars. Rover has been working at
little more than half its capacity – 56%. As the accompanying article
explains, because of the huge cost of fixed capital in a modern mass
production car plant, you have to run at 70% of capacity to break even.
After that it’s profit all the way. Because of this effect, Rover has
been leaking losses since 2000, and indeed long before.
Phoenix and China
That is why Phoenix was in negotiation with SAIC. They have been
talking the deal up for months to keep Rover afloat. But what on earth
did they think the Chinese wanted with Rover? Why should a company with
a potential home market of 1.3 billion people be interested in
producing in the UK? At present Chinese car production mainly consists
of assembling kits from more advanced motor producing nations. SAIC is
a state owned company. What they wanted all along was the technology.
Phoenix has already sold it to them in a separate bundle. That is why
they didn’t want the rest of the package. That is why the deal is off.
Tony Woodley, of the Transport and General Workers’ Union, has
consistently failed to raise the persistent rumours of malpractice
about Phoenix. In effect he has disarmed his members and left them in
the lurch. He still blames BMW for the state Rover is now in.
At its peak, the companies that came together to form the present MG
Rover employed 170,000 workers. Now just 6,000 are collecting their
cards at Longbridge. The story of Rover’s downfall is the story of the
decline of the UK car industry and of swathes of other manufacturing
industry in this country.
The company was privatised in 1988 into the tender mercies of
British Aerospace. What did BAe know about the car industry? Rover was
passed from hand to hand, undergoing the indignity of continual name
changes. At one time management were looking to a joint venture with
Honda. At least Rover would have had a new range of models, even if
they looked suspiciously like Hondas. But Rover management rejected the
Honda link in favour of takeover by BMW in 1994. BMW appeared to have
no plan as to what to do with their new acquisition. The new range
failed to materialise. In the end, in 2000, BMW walked away from what
they called the ‘English patient’.
BMW threw money at Rover. They gave an interest free loan of £427
million, repayable by 2049. They left them with £385 million of unsold
cars and a cash dowry of £112 million. That is what made Phoenix eyes
light up. That is the inheritance they have squandered. Managerial
neglect is a longstanding feature of the decline of the UK auto
industry. Morris (later Lord Nuffield) spent more time on his
philanthropic work than running ‘his’ car company. But for the Phoenix
four, charity begins at home!
The government has responded to the disaster with a £150 million
package. This is mainly redundancy pay and retraining measures. They
are paying skilled workers £150 million to stay at home! Four years ago
they could have nationalised the firm. They could even have paid full
compensation. Labour still could and should take over what’s left of
Rover and save whatever still can be saved, in conjunction with the
workers. But the last four years has been a wasted opportunity.
New Labour will lecture workers about ‘realism’ and the fact that
governments can’t run an active industrial policy because that means
them picking winners. That argument would be more effective if the
present government didn’t have an unerring ability in picking crooks
and losers every time they have the opportunity to select managers.
Socialist Planning
New Labour’s policy towards manufacturing has been one of malign
neglect. One million jobs have gone in industry since 1997. Yet it
remains the case that 60% of our exports are from the manufacturing
sector. How are we supposed to make our living in the world if this
goes on? In February this country ran a £3 billion deficit – for one
month. We are running a trade deficit of 5% of national income. That
means foreigners are giving us £1 of every £20 we spend. Why on earth
should they keep doing this? They won’t. We can’t all make a living
with financial spivvery in the City or by ringing people up from call
centres and irritating the hell out of them. We have to make use of the
manufacturing skills that exist. Capitalism has run our manufacturing
system into the ground. Only socialist planning can rebuild it.
A very short history of the UK car industry
For the last hundred years British car-making capitalists have shown
two distinguishing features – greed and stupidity. The motor industry,
together with passenger air transport and the computer, is probably the
defining technology of the twentieth century. A hundred years ago the
engineering capitalists who had the technological know-how to move into
this vast potential new market were not that bothered. They were doing
very nicely out of arms contracts with the government. Then as now
imperialism and militarism crowds out innovation.
In any case they lacked the vision of the likes of Henry Ford (a
thoroughly nasty piece of work) who foresaw homes with a car on every
drive, and laid plans for mass production accordingly. As early as 1913
his US plant was churning out 200,000 cars a year while the biggest UK
producer, Wolseley, was only making 3,000. British motor manufacturers
saw themselves as producing a plaything for the rich while Ford wanted
to sell the Model T to every well-paid worker and small farmer in the
USA.
Ford realised that, to make his cars affordable, he had to produce
them on a mass scale. He introduced techniques of mass production (now
known as ‘Fordism’) and made sure his car plants were planned to the
last detail. Everything possible was done in-house: he didn’t want any
nasty surprises. The trouble, for his imitators in Britain, was that
this would involve a lot of costly investment. They preferred to rely
on outside suppliers for components. Morris, which emerged as the
biggest domestic producer, was family owned and did not even raise
finance by launching its shares on the Stock Exchange till the
mid-1930s. The families that owned these car firms saw them as tickets
to buy town and country homes and places in London ‘society’ – rather
than factories to be invested in for the future. Their preference for
dividends over investment promoted a short term outlook within the
firm. Morris did not appoint an experimental engineer till 1949, and
spent just 1% of turnover on research.
Mass Production
For all that, Britain emerged from the Second World War as the
second biggest car producer and the biggest exporter in the world.
Let’s see how management squandered that position.
What were the scale economies embraced by the US mass producers and
balked at by the smaller UK companies? By the 1970s it is reckoned that
engine blocks could be produced efficiently only at levels of a million
a year. The pressing out of body panels required huge capital
investment and two million a year needed to be made to be producing at
least cost. By 1970 the minimum efficient size of a car plant was
reckoned to be two million vehicles. The combined UK producers, by now
called British Leyland, were producing 200,000 – 250,000 cars a year.
The economics of mass production meant that producing below capacity
produced massive cost penalties in terms of expensive plant lying
around unused.
By 1969 Ford had invested three times as much fixed capital behind
the elbow of each of their car workers as British Leyland. Not
surprisingly productivity in Ford was three times the BL level.
It wasn’t just the Americans. In 1965 the ‘average’ German car
worker made 6.4 cars a year compared with 5.8 in Britain. In 1970 he
made 7.5 and in 1976 he made 7.9. British car-making productivity
actually fell over that period.
Sup-optimal levels of production increased costs – which hurt sales
– which produced below capacity output in the factory – which hurt
sales some more. And all the while the boss class made merry. British
Leyland (now MG Rover) made £75 million between 1968 and 1975. £70
million was syphoned straight out by the shareholders. The bosses’
hands in the till is as British as roast beef and Yorkshire pudding
The decline of UK car manufacturing became evident after 1960.
Critics blame the panic amalgamations in the 1960s for the decline.
Actually they were a response to a rot that had already set in. Austin,
Morris and all the UK producers collapsed together into a heap called,
for a time, the British Motor Corporation. The 1964-70 Labour
government encouraged amalgamation to produce a ‘national champion’ big
enough to take on the global competition. It was already too late.
The 1968 merger left 48 factories scattered over the country. No
real move to mass production was initiated. Rationalisation only
reduced the number of engines from nine to three. Even marketing
remained divided with separate ‘Austin’ and ‘Morris’ dealers selling an
identical Mini, apart from the badge.
In 1975 British Leyland collapsed and was promptly bailed out by the Labour government. So what’s Blair’s problem?
Leyland was privatised by Thatcher in 1988. They managed to get rid
of it to British Aerospace by writing off £150 million. In the 1980s
BL, now called MG Rover, began to build links with Honda. It is a
measure of decline that the British motor industry was now dependent
for new models and cutting edge technology on Japanese industry, which
had been a smoking ruin in 1945.
In the 1960s Lord Stokes of British Leyland, stated, ‘We don’t make
motor cars, we make money.’ The firm he headed now makes neither.
What’s the problem? It’s not Britain. It’s not British workers.
Britain is still a country of mass car production. We even export lots
of cars. But none of them is British owned. Our problem is the British
capitalist class.
