Mini: Wizardry on wheels or business blunder?
One of the Mini's most ardent fans, IAN NICHOLLS, puts forward the theory that although it was a marvellous and innovative product, it was also financially one of the most damaging...
The costliest BMC of them all...
ON the 4th October, 2000, the last of 5,378,776 Minis was driven off the production line at Longbridge after an incredible run of 41 years. The Mini conquered the world of motorsport, was endorsed by celebrities and royalty, and outlasted its contemporaries with ease.
The Ford Cortina gave up the ghost after a mere 20 years and five different bodyshells. Alec Issigonis' baby changed the family car forever, consigning rear-engined rivals to the dustbin of history, and went on to become the most numerically successful British car ever. And one of those rear engined family cars was the mighty Volkswagen Beetle. It may at one time been the world's best-selling car, hailed as a symbol of West Germany's economic miracle, but the blunt truth is that the Volkswagen Beetle was a technical dead end.
This was exposed by Alec Issigonis with the Mini and ADO16 and when Volkswagen designed its Beetle replacement, it abandoned the concept in favour of the front wheel drive Golf. That was the magnitude of Alec Issigonis' technical brainchild - it forced the manufacturer of the world's favourite car to completely abandon the technology behind it. But when that last Mini rolled off the line at Longbridge on that autumn day, the descendent of the company that had created it back in 1959 had just endured what turned out to be the penultimate financial crisis in its long history.
How was it that the company that created Britain's most popular car came crashing down onto its knees? As a Mini driver on and off since 1983, this is a subject that fascinates me. A disturbing conclusion I've come to is that the Mini was a major factor in the demise of the British motor industry. August 1959 may have seen the dawn of a new era in family motoring, but in some respects it also marked the point of no return.
Origins of a new species
From whence it came - compact it may have been, but that was achieved through costly complexity
The origins of the Mini are well known. In November 1956 the British and French governments tried to seize control of the Suez Canal in Egypt which the Egyptian government led by Colonel Nasser had nationalised in order to fund the Aswan dam project . The Anglo-French invasion was combined with an Israeli incursion into Egypt, and while the military aspect of this operation went to plan, the diplomatic part of it did not. World opinion was outraged and the American government put economic pressure on Britain and France to pull out.
Eventually the two European powers retired humiliated. The Arab world cut the pipeline that supplied Britain with 20 per cent of its oil and blocked the Suez canal. The only way of getting oil was by tankers travelling around the Cape of Good Hope, and as a consequence the price of fuel in Britain rocketted, and in December 1956 petrol rationing was introduced. Sales of large cars slumped and bubble cars soon found a ready market as buyers looked for more economical forms of transportation.
The Mini originated in BMC chairman Leonard Lord's gut reaction to sweep away the bubble cars and replace them with a proper car. Petrol rationing only lasted until May 1957, but Lord's knee jerk reaction had now gained momentum. Alec Issigonis had been working on XC9002, a transverse engined front wheel drive car with an end on gearbox, intended to replace the Morris Minor. The Morris Minor was at the time Britain's best selling car and BMC was earning around £40 in profit on each car sold. The decision to proceed with an altogether smaller car resulted in Issigonis abandoning transmission concept and adopt the the gearbox in the sump arrangement that would be used for all BMC/BL front wheel drive cars until the advent of the Maestro in 1983.
This was the only way he could make the car narrower. A look at any Mini fitted with a Honda, Vauxhall or Rover K-series engine transplant with an end on gearbox will reveal that the inner wings have to be removed to create enough space. The transmission in sump arrangement would ultimately prove a dead end, and after 1990 the only BMC>Rover car fitted with it was the Mini itself.
The economics of producing the Mini went astray from the start. The floor and the doors were pressed at a new BMC plant at Llanelli in Wales and delivered by train to the Longbridge or Cowley factories. The rest of the body was made by Fisher and Ludlow; the powertrain came from Morris Engines in Coventry and the suspension components came from the former Wolseley factory in Birmingham.
Cowley was also suppled with bodies by Nuffield Metal Products in Birmingham. All these transportation costs from far-flung factories for a budget car assembled at Longbridge or Cowley ate into potential profits. And the price for the base model of the world's most advanced family was £496.95 - astonishingly low!
Priced for the opposition
This car made £50 profit - for each car sold - for Ford, whereas the Mini lost £30...
According to some historians, Austin had based the pricing of its cars in the pre-BMC by mirroring what Morris charged. Austin supremo Leonard Lord believed that William Morris (later Lord Nuffield) was the master in cost control and simply assumed that Longbridge's cars cost a similar amount to manufacture. With the formation of BMC, the corporation now looked at Ford for its pricing policy. It appears that BMC simply decided to sell their new baby at a similar price to the sit-up-and-beg Ford Popular, which ceased production in 1959. In an interview with Jonathan Wood for his book Alec Issigonis: The Man Who Made The Mini, former BMC executive Geoffrey Rose stated,
"George Harriman (BMC deputy chairman in 1959) would have decided the Mini's price and one of the key figures in the decision was Harry Williams, a cost accountant... Both Len Lord and George Harriman thought to some extent "volume will deal with it". It's on the basis that you make cars all the week until Thursday afternoon and Friday is when all the overheads have been covered and you make the profit. Sad to say, it came down to the sheer arrogance of 'we're BMC, we know what we're doing'. But Alec (Issigonis) would have been completely outside the pricing process. In some board meetings that I attended I used to have to help him through the balance sheet, through the figures."
In defence of BMC, it was found that by 1962, 91 per cent of Mini sales were of the £537 De Luxe version, and there were more expensive variants on the way. So how much did the Mini cost to manufacture? Ford of Britain soon obtained a Mini and its product planning department took it apart to work out its manufacturing cost. The launch of the Mini had upstaged Ford's own debutante, the Anglia 105E, and both cars were aimed at the same market sector. The base Mini compared with the £589 - the Dagenham product costing a whopping £93 more. How could BMC do it undercut the Anglia so handsomely?
Mastermind behind Ford's model renaissance of the early 1960s, Terry Beckett, later commented, "I can remember in one month in 1960, the Mini acheived a 19 per cent market penetration. That was just one model"
According to Beckett, Ford calculated that BMC was losing £30 on every Mini it made. He added: "I could see ways in which we could take cost of the Mini without in any way reducing its sales appeal... BMC could have priced it at £30 more, and not lost any sales at all. You can track the decline of BMC from that single product: it took up a huge ammount of resources, it sterilised cash flow and it was a pretty disasterous venture".
Strong words indeed, but Terry Beckett became one of British industry's most outstanding executives, ultimately becoming the chairman of Ford of Britain, and head of the CBI. The major back-story of the car sales wars of the 1960s would be Beckett's marketing brilliance versus Issigonis' engineering genius. And in 1976 overtook British Leyland...
One of Terry Beckett's team was the late Alex Trotman, who rose even higher, heading Ford worldwide and gaining a peerage in the process. In a television interview, he recalled that the Mini cost around the same as the Anglia to manufacture - and Ford was making £50 profit car. In Ford's opinion, the Mini cost £539 to build, a similar figure to the list price of the De Luxe.
Ford contacted BMC at least twice about the Mini's underpricing, and were politely re-buffed.
As the Mini's sales increased, so the losses mounted. Between 1963 and 1966, the Mini's price dropped even further. In the 1984 Mini 25 souvenir brochure, there was a table, Mini UK Price Compared With Cost of Living (see below). Taking inflation into account ARG calculated the Mini's later prices in 1959 terms. In real terms the price of buying a new Mini fell over 20 years, the lowest point being 1973, when £738.84 for a Mini corresponded with £370.71 in 1959 prices.
Mini UK price compared with the cost of living:
It is interesting to speculate on what would have happened had the Mini had the same price as the base Ford Anglia. No doubt some sales would have been lost, but the Mini probably would have sold at least as much as the Anglia. The Ford may have been more reliable, but it was nowhere near as fashionable. The fashion icons of the 1960s were never seen driving Anglias.
When Anglia production ceased in November 1967, 1,288,956 had been built compared to 1,663,539 Minis. Had Mini sales had matched the Anglia, but with a £50 profit margin as Alex Trotman stated, then BMC could have earned £64,447,800 in profit. To put that into context, the projected investment for Alec Issigonis' Mini replacement, the 9X, was £10m, excluding manufacturing facilities.
BMC made a fundamental mistake with the Mini - when a technical innovation is introduced, it always first appears at the top of the range before being filtered down to the lower priced models. Starting at the bottom and working up - even when properly priced - means the profits would have been marginal. The more the works Minis thrashed bigger and more powerful opposition in motorsport, the more the public bought the car and the more money BMC lost.
Perhaps that in itself is an explanation as why Lord Stokes closed down the department in 1970. In August 1962, the Mini was joined by the Morris 1100, and that soon became Britain's best selling car. Also making its debut in 1962, was Ford's impeccably-costed Cortina. Even the steering wheel had been re-designed four times to bring it in under budget!
Some pundits have claimed that the ADO16 was underpriced as well. Yes, the ADO16 was cutting edge technology, but would consumers really be willing to pay extra for it?
The same mistake twice?
It appears that no one has come forward with an estimate of what the ADO16 cost to manufacture. The Cortina was more reliable and stylish in its own way, and the Lotus-Cortina added lustre to the range, winning the 1966 RAC rally. Both Issigonis front wheel drive cars were blighted with reliability problems. Oil leakages from the gearbox were common. A gearbox leak fix kit would have to wait until after the Mini ceased production.
Below is a table of BMC's pre-tax profits. Some of the information is vague, and the profit per vehicle calculation is complicated by earnings from BMC's other activities:
Trying to analyse the above information is complex, but here goes.
When BMC absorbed other companies such as Pressed Steel and Jaguar, the calculations are difficult to comprehend. 1967 Was the year that alarm bells started ringing in Whitehall. BMH's post tax profits were a mere £3,869,000, and then a dividend of £6,941,000 was paid to shareholders, resulting in a loss of £3,072,000.
A lot of pundits have usually selected 1958 as the last pre-Mini year, and compared it with one of the early 1960s years, before BMC absorbed Pressed Steel. In fact, as the 1959 figures are for the year ending 31st July, and the Mini did not go on sale until the end of August that year. A glance at the table below reveals that the profit per vehicle figure see-sawed all over the place, and in 1967 it did look bad. The attempts by the Wilson government to merge BMH with the Leyland Group seem to have come in the latter part of 1967, when presumably the BMH financial results were known to those in power.
The 1962 profit figures are equally dire at £22.01 profit per vehicle. The Mini production was 216,087 that year, and the financial results go up to 31st July 1962, which excludes the impact of the Morris 1100, which did not go on sale until August 1962. After that, the situation seems to have improved somewhat. Maybe the ADO16 did make a profit and compensated for losses made on the Mini?
Sales rise, losses mount
The 1963 figures with the ADO16 established as a best-seller show a major improvement. The 1964 figures, like the others end on 31st July. Halfway through the financial year in January 1964, Paddy Hopkirk and Henry Liddon won the Monte Carlo Rally in the Mini Cooper 1071S, which while it does not seemed to have done much for Mini sales, was a major publicity coup for the Issigonis front wheel drive concept. Obviously the Mini was too small for some buyers requirements, so an 1100 was an excellent user-friendly alternative.
Production of the ADO16 leapt from 97,649 in 1962/63 to 219,473 in 1963/64. The Landcrab was launched in late 1964, and its impact is included in the post-1965 inclusive figures. Unfortunately the takeover of Pressed Steel in 1965 obscures the figures which make it difficult to assess the impact of the car on BMC's finances, but it does not look good.
1100 production slumped in 1966/67 to 160,097 - that awful year for BMC - but Mini production soared to 237,227, its highest to date. If Ford was right and BMC was losing £30 per Mini, then the corporation lost a staggering £7,116,810 on that car alone in 1967. But of course, this calculation takes no account of export sales, and how the Mini was priced in overseas markets. 82,436 Minis were sold in the UK in 1967, which equates to a loss of £2,473,080, which is not as bad as the earlier figure. Below is a table of UK Mini sales.
As can be seen, Mini UK sales actually declined after 1966, with the slack in demand made up by overseas sales. It is hard to accept today that UK buyers were falling out of love with the Mini - was it simply that BMC factories couldn't keep up with demand? When Joe Edwards became BMC's sole managing director in June 1966, the corporation seems to have had a more sense of urgency and dynamism about it. Was it possible that from 1966, BMH as it had become concentrated on export sales of the Mini where there was more money to be made?
The arrival of British Leyland
Had the Mini been profitable, could there have been enough funds to get this honey into production?
Certainly in late 1967, the knives were out for BMH, and pre-Joe Edwards, the company was badly run, the evidence for that is overwhelming, but one of the reasons for the firm's woes was the strength of Ford of Britain. The Mk 2 Ford Cortina launched in 1966 was one of the company's fastest selling cars to date, and impacted on BMC. The 1300cc version of the ADO16 would not make its debut until the 1967/68 financial year - when production of the car soared to 249,500.
The Ford Cortina Mk 2 revealed the company's ability to make the most of its initial investment. Terry Beckett, Alex Trotman and (later) Sam Toy brilliantly read the car market, and when they retired Ford began to lose the plot. But Ford's strategy during the 1960s, 1970s and 1980s was aimed giving the fleets what they wanted - reliability and a big boot. For Ford, reliability was borne through rear wheel drive. According to former Vice President of Ford Europe, Karl Ludvigsen, as late as 1980 Ford of Britain was less than enthusiastic about the prospect of trying to sell the front wheel drive Escort to the fleets.
The Mk 1 Mini ceased production in 1967, with UK sales of around 817,755. If £30 per car was lost then that works out as a total loss of £24,532,650. Had BMC earned the same profits as Ford, then it could have made £40,887,750. With the Mk 2 Mini, BMH seemed to have made some effort to ensure commonality between Austin and Morris versions - thus reducing costs. UK sales of the Mk 2 Mini were around 154,276 - which works out as a loss of £4,627,380 (assuming it was stil £30 per car).
Some time between 1965 and 1967, the concept that BMC was not making money on Mini began to seep into the minds of the company's senior executives. Production engineer Peter Tothill, quoted in Jonathan Wood's book, Alec Issigonis: The Man Who Made The Mini, recalled a meeting at Longbridge: "They'd come to realise the massive cost penalty being incurred by the Mini. A cost comparison was done between it, the (Austin) A40 and the (Morris) Minor and all the bits were laid out to see if any parts could be commonised. If, for instance, we used the same sun visor we'd save half a penny a visor. The trouble was the Mini was over-engineered, there was so much cost built into the car with, for example, a penalty of £20 to £25 on the sub frames and suspension. Because it worked at a ratio of 5 to 1 you've got forged arms instead of pressings and ball and roller bearings for the pivots."
BMH had got its figures wrong on the front wheel drive range, and by 1967 they seem to have realised it - yet, that didn't stop the company pouring another £20m into the Cofton Hackett engine factory. However new recruit, Roy Haynes, began to press for a rear wheel drive fleet car and work started on the Morris Marina.
With the Mk 3 Mini, there seems to have been a conscious effort to reduce the cost of manufacture. Out went hydrolastic suspension, and a reversion to the rubber cones of 1959-1964. Of course when Ford took apart a Mini and made its assessment of £30 loss per car, it was a rubber cone car - and does that mean BMC was losing more than £30 per car between 1964 and 1969?
Also gone from the Mini was some of the chrome brightwork, such as upper doortrims and the bumper over-riders. Basically, BLMC eliminated what we now call bling from the Mini in an effort to cut costs. Anyone who has tried fitting an over-rider kit to a post 1969 Mini, knows they are not easy to fit. Eliminating time consuming activities such as this in the factory seems to have had some effect, as these blander Mk 3 Minis were produced in greater numbers - with the best year being 1971 when 318,475 left Longbridge and overseas plants. So did the Mk 3 pay its way?
In 2001 the then BLMC boss Lord Stokes commented, "We lost about £20 per Mini. Then people wonder why I scrapped the Cooper. We were giving more money to Mr Cooper than we were making in profit."
If we believe this claim, then from 1970 to 1974, the last full year of the Stokes era, when UK Mini sales totalled 464,822 then BLMC lost £9,296,440 on Issigonis' baby. BLMC may have reduced the cars cost of manufacture, but it lost more money because it was better at selling them than BMC! During this period BLMC employee John Bilton investigated the cost penalty of the Mini's 10-inch wheels. He told Jonathan Wood: "...when researching wheels and tyres I found the 12-inch wheel was cheaper than the 10-inch one. It was larger but the tyre was lighter, fundementally you've got less material. "
12 Inch wheels were used on the ADO16 1100/1300 and Hillman Imp. John Bilton continued: "Philosophically you can't argue with it but proportionally it would actually have made very little difference to the Mini's interior space. The bit you had given away would have been more than compensated for by using a standard product"
From the end of 1974 the Mini 1275GT was fitted with 12-inch wheels, but it would be another decade before the rest of the Mini range got them.
So why didn't BLMC simply raise the price of the Mini ?
Turning the corner?
Boring the Marina may have been, but it was the right stuff in terms of profitability
Ex-Ford, then BLMC finance director John Barber was quoted as saying, "We priced it at what the market could stand. Then, almost as an afterthought, we would cost it and if it showed a loss, we would have to cost it again. BMC should have said: 'Where do we slot into the market? We’ve got the most sophisticated car in the world. We can afford to charge £100 more than the wretched Ford runabout'. Then, having got the Mini into the wrong slot, they did the same with the 1100's successor."
Perhaps in view of the drain on BLMC's resources BLMC should have raised the Mini's price or have had the courage to bite the bullet and kill the car.
Between 1968 and 1973 the former BMC, now known as the Austin Morris division of British Leyland was managed by former Triumph boss George Turnbull. Keith Adams in his profile of Turnbull states, "In the first year of his tenure, Austin-Morris lost £16 million, but as Turnbull later recalled, "...I couldn't have wished for a better people than the management I had then and the directors I had round me for it was quite fantastic how they rallied round when times were difficult." Thanks to some tough spending decisions and an improvement in all round communications, Turnbull did indeed turn round the troubled division. In fact, it was so complete a turn around, that by 1973 Austin-Morris was in the black and generating half of the entire profit generated by British Leyland."
In 1973, all Austin-Morris' models were ageing, Marina apart, and were essentially the same range that BMH had bequeathed to BLMC, which makes Turnbull's acheivements all the more impressive. So maybe he knew what he was doing with the Mini? But then again, the replacements which were about to come on stream would not set the world on fire, and Turnbull had a hand in them.
BLMC woes were increased by the October 1973 Arab-Israeli war. Israel's Arab neighbours launched a pre-emptive attack, but a brilliant counter attack by maverick Israeli general Ariel Sharon who disobeyed orders to do so, salvaged the situation to force a truce. It is interesting how events in the Middle East have effected the UK car industry over the years. Petrol rationing was introduced again and the Arab world raised the price of oil to the west. It has been claimed in the past that sales of BLMC's larger cars declined, and those of the Mini increased in 1973/74 to the annoyance of the company's management. However, a look at the statistics show that to be a falsehood.
All sales of BLMC's larger cars declined in 1973/74. Mini production was 295,186 in 1973 but went down to 255,336 in 1974 and then began a long term slump in the car's production rates. If buyers were going for economy cars, they were not from the BLMC stable, and with a new generation of superminis to choose from why would they buy the Mini?
British Leyland's policy towards the Mini for the rest of the 1970s was that of underinvestment, driving customers into the arms of rival manufacturers. The car's flaws were exposed for all to see. After the Metro was launched in 1980, the Mini was sold as a budget car by a half-hearted Austin Rover management - and then in the 1990s, the car was marketed as a fashion accessory, before it finally petered out in 2000.
So was the Mini a financial failure. Probably, but it is complex subject with many angles. It is often said that the modern world is run by accountants, well a study of the Mini pricing fiasco shows why this is not always a bad thing.
With the arrival of the Metro in 1980, the Mini finally started making healthy profits for BL
Please let us know your thoughts - and let us know whether whether you think the loss-making Mini ended up causing BMC's downfall...
IAN is being scrupulously polite; but he shouldn't be. No matter how advanced your products are, not knowing the cost of makingthem is commercial suicide.
Issigonis was long revered as a 'great engineer', but he did not understand value. An engineer is someone who can do for 10p what any idiot can do for a pound. Issigonis did it the other way round, and bankrupted BMC.
Incidentally, Ford put the 'gearbox in the sump' on the original 1.3-litre Fiestas. Did they leak oil? I don't think so...
KEN STRACHAN
THIS is a tragic tale. The most unbelievable thing is even 10-15 years after the Mini went on sale, Leyland managers remained just as oblivious to the issue as their BMC forbears. To have repeated the error on the later ADO16 really beggars belief.
The way Ford's observations on Mini costs where brushed aside demonstrates the arrogance that accompanied incompetence in the company during this period. These people are the real villains and the reason why we have no domestic mass producer of cars in the UK today.
PAUL HAMPSON
PERHAPS the main reason the Mini started to fail was car buyers became more affluent and didn't want a very basic car that was unpleasant to drive on long journeys and extremely noisy and none too reliable.
By the late sixties, when Mini sales started to drop off significantly, not many families or long distance drivers would have been tempted by a car that had no creature comforts, was very uncomfortable and whose biggest engine was under 1000cc. Ironically the ADO16, which was made by BMC, became a far bigger seller because it was bigger, had quite a lot of poke in 1300cc form, and which had a luxury Vanden Plas version, always a personal favourite.
The Mini might have been fashionable, though I often wonder if owners like Mary Quant owned something bigger as well, but its shortcomings became well known as the sixties wore on.
Who on a decent salary, or who had a car provided by their company, which became more common by the end of the sixties, would have gone for a Mini, whose design was becoming dated, over the more modern and pleasanter alternatives from Ford whose Cortina was an excellent car. I'm not knocking the Mini, as it was a very clever piece of design and excellent in its early sixties heyday, but by 1969 the writing was on the wall for the car.
GLENN AYLETT
I WILL take this opportunity to deal with a couple of points.
I do not have any issues with Alec Issigonis' skill as an engineer, but with the incompetent management who priced his products to low. In the short term BMC lost money on each Mini sold and in the long term they were denied the resources to fund its 9X replacement. If Ford made £50 profit on each of the 1,288,956 Anglias, then that was more than enough to fund its Escort replacement which as it carried over many of the mechanicals from the outgoing Anglia no doubt cost less to develop than the estimated £10 million for the all new BMC 9X. The underpricing of the Mini squandered the technological lead BMC had built up over its rivals.
I certainly do have issues with Issigonis later assuming the role of de-facto BMC product planner. The 1800 and Maxi proved to be costly diversions when what was urgently needed was a 1600cc ADO16 variant.
With the deepest respect to Glenn Aylett, he is slightly out with his dates. Mini sales did not start to wane until the early 1970s, 1971 was the year of peak production, with 318,475 emerging from the BLMC factories. Mini sales began to decline at the point in time (post 1972) when the 9X should have reached the showrooms to replace it.
That it failed to materialise is down to BMC's underpricing of the Mini, which failed to generate the profits to fund its replacement. When a Mini replacement failed to emerge from BLMC, consumers increasingly turned to the continental Superminis for a more modern small car, and the Renault 5 emerged as the front-runner. Like the MGB, the Mini was dragged kicking and screaming into the 1970s simply because there were not the funds for its replacement, and this was the fault of the BMC managements financial ineptitude.
IAN NICHOLLS
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