Part One
A Monster is born
ADO16s freshly off the production line in one of BMC's many overseas factories, this time Australia. This picture could well have been taken in New Zealand, South Africa, Spain... Now all that is left is one factory in a Birmingham suburb.
In the foyer of the motor museum at Gaydon there are three cars standing like memorials to the golden age of the British automotive industry: the Austin 7, the BMW-Dixi and the Swallow. They are, of course, all the same car and the line-up is not even comprehensive. They represent a time when Britain was bathing in the glory of industrial might, when the manufacturers of Germany, France, America and Japan looked to the UK for leadership. If our rose-tinted spectacles colour the sunrise of our industry with a warm glow, then they stain blood-red the sunset we now witness. The graveyard of our car industry is full to bursting, and the last gravestone is even now being prepared.
At least one would think so if one were to believe the doomsayers at their most histrionic. In fact the UK car industry is as healthy now as it as ever been, its just that it is fragmented and foreign owned. This is not in itself anything to worry about for this industry has always been global, as those Austin 7s show. Ever since the Ford Model T put America and then the rest of the world on wheels it has been clear this is a fundamentally international product with no country necessarily having an inherent advantage. The technological advances that created the modern automobile have travelled far from their homelands: what we see on our roads now is essentially a German invention made on American production lines under Japanese management. This is not to denigrate the contributions made by various Italians, French, Koreans and so on. Far from it, car industries have become the national champions of just about any country with industrial ambitions. One may ponder the innate advantage the Germans or Japanese may have only for the Koreans and Malaysians to come along and show that they too can compete with the best. So if just about anyone can join the fight and win, why is it that Britain is the perennial global loser?
For the British car industry to have been declining so consistently over the years it must have started from a very high point. The crucial point to understand is the grip that production scale and product development have on the economics of the business. In the early years of the new industry both these costs were relatively low, attracting the interest of a multitude of innovators and entrepreneurs. While development costs have increased gradually, only come to weigh heavy on the economics of the industry in recent years, dramatic changes in production technology made a huge impact at the start.
In the late nineteenth century car production was based on the craft techniques of the preceding carriage manufacturing. This required modest levels of capital and knowledge involving a few skilled craftsmen building individual cars from the ground up. However, this was a process that was difficult to mechanise and in 1897 Daimler admitted that it took up to three months to complete each car. Increases in production could only be achieved with proportionate increases in factory space, in other words a doubling of output would require a factory of twice the size and twice the cost. At the same time production advances were held back by a supply industry that had also yet to discover the joys of mass production. Meanwhile development costs were kept low by the widely practised custom of using foreign technology. As a consequence cars were produced at a low volume with a high profit margin with each country producing for its protected domestic market. The low entry costs incurred by traditional methods and outsourced technology meant by 1900 there were 80 manufacturers in Britain alone.
It seems that all the great leaps in production technology were created in the heat of war, the first being the American Civil War. Regarded by some as the first modern conflict, the advantage lay with the side possessing the strongest industrial base. The desperate need for munitions necessitated development of faster methods of production which later brought permanent benefits in peacetime. The lessons learnt were ultimately realised in the first mass produced car, the Oldsmobile Curved Dash Runabout, and it achieved production levels of 6500 by 1905. Henry Ford further refined the new methods resulting in the elegant flow of the moving production line of 1913. However, the advantage was not specific to America and in the same year the process was transferred to Ford’s Trafford Park factory in the UK. The British operation produced 6000 Model Ts the following year when the next biggest domestic producer, Wolsey, managed a still creditable 2500. Morris, following the General Motors model, tried to compete by making extensive use of out-sourcing but the nascent supply industry could only support production levels at the firm of 1300 that year. So William Morris went to America to discover how it was done, finding an industry using standardised, interchangeable parts and extensive subcontracting.
Development was interrupted by another war, the Great War of 1914-18, and again improvements made in the munitions industry were to the subsequent benefit of peacetime automotive production. Herbert Austin started work reorganising the Longbridge factory in 1919 to bring it up to the same standard seen at Trafford Park, completing the process by 1924. William Morris set about reforming the supply industry using long production runs to induce specialisation, and if persuasion did not work he simply bought the company and modernised it himself. Yet despite these advances the basic technology of production was surprisingly old: steel bodies had been available since 1908 and the hydraulic press even dated from 1795, but car bodies of the 1920s were still constructed around ash frames. This caused a particular bottleneck in the paint shop where even the black paint favoured by Ford took up to three months to harden.
It is important to distinguish the system developed by Ford from the production lines we see today. Essentially Ford had perfected the old craft methods by dividing jobs into simple, repetitive tasks and ensuring that the production flow was smooth. This was mass production, but not as we know it. The next great production technology advance also originated stateside with the invention by Edward Budd of a method for making an all-steel body. Sheets of steel could be pressed and welded at great speed resulting in a strong, lightweight body that could also withstand the high temperatures necessary to dry paint in minutes rather than days. Forget Fordism, forget Just-In-Time and lean production: Budd introduced the revolution that has come to define car production and put a stranglehold on the industry. The system has a physical limit to output of about 250,000 units a year, but it is so capital intensive that the line needs to be running above 80% capacity just to break even. Dodge showed the benefits first, raising production from a respectable 5000 a year in 1914 to a massive 50,000 just one year later.
In effect this is the end of the story, everything that followed has been the continuing process of the inevitable consolidation in the industry. The point is this: while it is perfectly possible to run such production line at any level of output, there will always be a competitor who will produce at a higher level for the same cost in capital and employment, the only difference being the additional cost of the raw materials. For this reason all manufacturers strive to have their production facilities working at full capacity and so reap huge profits. The downside of the Budd system is that the high fixed costs quickly lead to heavy losses below the break-even point, leading to wild swings in company revenues as production fluctuates around the 80% mark. Companies are therefore more concerned with feeding their production lines than with the desires of the customer, hence the reason why volume produced cars are so conservatively designed. The list of companies that are too terrified to step out from under their own shadows is almost endless: Jaguar, Mercedes Benz, VW to name just three. Indeed it took a great deal of courage for VW to make the quantum leap from Beetle to Golf, especially since only a few years before they had rescued the doomed NSU from their bravura Ro80. However, it was a move that VW were compelled to make, and they are understandably reluctant to move beyond the continuing success of the Golf format. In a sense, every new mainstream model is make or break for all manufacturers, not just Rover.
Knowing this car manufacturers will try any means to load up the production numbers. One way of doing this is to make a car which is hugely popular, like the VW Beetle, though this is disastrous if the sales do not support the strategy. Another way is to recognise that one model will not fill the production capacity, but a mix of variants will. This is not effective if the line has to be stopped for long periods while the machinery is changed over but it is precisely in this area that the Japanese have made their great advances. Toyota were able to reduce the time to change body stamping dies from a couple of hours in the 1950s to three minutes by the early 1970s; American and European manufacturers were still taking hours over the task even in the 1980s. This does not mean that Toyota’s flexible production system was in itself more efficient, in fact it was slightly less so, but it did enable the company to sell its products into the fragmented and poorly developed home market after the Second World War. More importantly for us it also enabled Toyota and the other Japanese manufacturers to later enter niches in foreign markets at low volumes and for high profits, to the detriment of British companies.
What is most galling is that the Japanese seemed to have stepped in where the British manufacturers failed. Britain was there at the birth of the automotive age, with Ford providing a huge impetus with the opening of Trafford Park. However, the American company slipped up commercially with its pacifist stance and lack of initiative after the First World War, allowing British manufactures to make good use of the government’s wartime investment and improve their production methods. The later Depression winnowed out some of the weaker companies so that by 1929 Morris, Austin and Singer could claim 75% of the UK market. In the meantime William Morris had seen the benefits of the Budd production system and by 1927 had formed Pressed Steel in Cowley in order to run his production on welded steel bodies. By 1934 Morris had a new assembly system with 12 miles of conveyor belts and five parallel chassis lines. Austin remodelled its own facilities for steel body-in-white production in 1936 and by 1938 monocoque-style construction was commonplace for those manufacturers in the mass market. Singer had perfected the old craft style of production but this became a hindrance in competing with the rapid pace of progress. Instead Vauxhall benefited from its purchase and modernisation by General Motors in 1925 to take its place alongside the five other major manufacturers, these being Austin, Morris, Standard, Rootes and Ford. This concentration of mass production in the UK meant an enormous overcapacity which found its export outlet mainly in the British Commonwealth.
Britain now had international standing in the automotive industry, spearheaded by the growth of Austin. The Austin 7 came to be made under licence in France by Rosengart, in Germany by BMW-Dixi and even in the US by the forerunner of Bantam, American Austin. The influence was felt as far as Japan, where the industry had barely progressed beyond the woodshed, with the first Datsun (or Datson as it was then) derivative of the same car, reaching the heady heights of 150 sales in its initial year. Extraordinary as it seems now, it was entirely reasonable that the Japanese should look to Britain for leadership: by 1939 the British automotive industry was up with the best in Europe and the US, with modern plants turning out competitive products. With export markets being explored there was no reason why the British industry should not have risen to global prominence in exactly the same way the Japanese industry did thirty years later. Then, as before in our story, yet another war intervened: the Second World War changed everything.
This should not necessarily have been the case. Although wartime car production was severely restricted, barely over 1650 units in 1943, and most plants being turned over to war production, this was an excellent opportunity for some future planning. Jaguar used this time to design the XK range, even the later V12, but the case remained that this was a wartime economy. Armament production could not easily be turned to peacetime car production, while at the same time the factories of Germany could be restocked with fresh capital. The British were further constrained by the architecture of their surviving factories which were not conducive to modernisation. The problems were not immediately apparent since only American car factories emerged from the conflict unscathed and their vehicle design had long since diverged from the European style, leaving plenty of room for the British to make the most of this advantage ahead of the Europeans.
Standard showed their understanding of Budd economics by endeavouring to keep production loaded with a one-model policy, and this high-risk approach paid off with the substantial export success of the Vanguard from 1948. Morris also enjoyed a good deal of export success, but the honours still lay with their great rival in Birmingham. Austin dominated the export drive taking up 50% of the export market in 1946 and started a manufacturing facility in Australia in 1949. Austin also found success making the Metropolitan for Nash of the US and thus benefited from the additional use of production capacity. Again the Japanese were not blind to this, and Datsun looked to Austin for the A40 and A50 along with the production technology.
In retrospect, though, the British successes were patchy and short term. UK manufacturers were cherry picking opportunities around the globe in an ad hoc manner and only Ford, operating from their Dagenham base, were consistent in penetrating the competitive European market. The French and Italians dominated their home markets, just as the British did theirs, and by the mid 1950s Germany had also begun to reassert itself. In the middle of the 1960s the British share of world trade in cars had dropped from a height of 52% to 19%. The only export opportunities on the continent were for niches in the market that had been left unexploited by the incumbents, leading to individual reputations abroad for oddball creations such as the VW Beetle, Citroen 2CV and Austin Mini. Even though British production in 1964 of 900,000 units made it the fourth largest car industry in the world it was clear that this was too much production capacity for the UK alone. Rounds of mergers started and marques disappeared in order to rationalise capacity to a point where the economics of the Budd system made sense.
As if things could not get worse there was one more time bomb ready to go off. You may recall that in the early years of the industry both production and development costs had been low enough to support a plethora of entrants. The expensive Budd production system had brought the car to the people by making possible low prices if the production levels were high enough, though the product itself was still relatively cheap to develop. However, cars have increased in complexity over the years so that it is now generally believed to cost up to one billion pounds to bring an all-new product to the market. Samsung even calculate that it would cost ten billion pounds to establish an entire new entrant in the mass market. Back in the 1960s manufacturers were not to realise how costs would rise so exponentially, but either way only those that entered the 1970s on a firm foundation would find continued success. Pity, then, the companies that were sucked into the British Leyland morass: they made the art of survival into an industry speciality. The Dunkirk spirit is an admirable quality, but far better to have not lost the battle in the first place.
Written by Michael Wynn-Williams at Cardiff University
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