Part Two
From the jaws of victory
Sir Don Ryder: too little, too late?
Like the layers of an onion the story of the collapse of British Leyland seems to continue through successive levels, each sorry tale simply enfolding the next. When all the layers have been cut through one expects to find the core, only to find yet more layers. If it were possible to pinpoint the critical factor that brought down the company then we could have scapegoats and a salutary lesson for business consultants to study. Yet the history of the company shows a litany of bad decisions and appalling bad luck punctuated by moments of commercial courage and unalloyed brilliance.
By the late 1960s the world’s automotive industry was beginning to explore the possibilities presented by global integration. While it was true that Ford and GM had been operating internationally since pre-war days, they represented the exception rather than the rule. Even then their foreign subsidiaries tended to exist as stand alone operations, European Fords for example having long diverged from the North American model range. GM were even more locally based, the British Vauxhalls having almost nothing in common with their Opel siblings and were confined mostly to the UK home market. Car design was expensive, but not yet prohibitively so and it was possible for even small manufacturers, such as Rolls Royce, to engineer new products almost entirely in-house. With these costs spread over an annual output expressed in hundreds rather than thousands a premium price had to be charged, but the traditional craft style of assembly was economic at low volume and even facilitated the inflated price. Without any real basis in truth hand craftsmanship was equated with quality and customers were willing to stump up the extra fees needed to pay for uneconomic processes. At least this production style afforded another advantage for the discerning consumer, almost endless opportunity for variation.
Not so for the volume manufacturers. The mass production system introduced by Edward Budd became the paradigm that defined the volume industry. Whereas a hand-built Bentley chassis might have, to give just one example, a Gurney Nutting body tailor made for it, the Budd approach brought together all final assembly on one moving production line. This system has a capacity of around 200,000 units a year, but more importantly the expense of such a capital intensive method means that it has to be run at 80% of capacity or above, in other words at least 160,000 cars have to roll off the line each year. The only way to produce below this harsh economic limit is to charge a premium, hopefully for what is perceived to be a premium product. However, the temptation always remains to ramp up production towards the capacity limit since this can be done at little extra cost, apart from the price of the raw materials being fed in at the bottom end. If, as BMW found, this can be done while retaining some of the premium pricing then vast profits can result. Going in the other direction, however, from high-volume low-profit to low-volume high-profit, is much more challenging. Our old friend Rover is the classic example of how risky this is.
Demand for cars after the Second World War had increased dramatically, rising home market demand soaking up the expanding output of national producers. However, by the late 1960s production capacity outstripped demand and manufacturers were being forced to find ways to keep the production lines loaded. Ford were the first to look at globalising, releasing the pan-European Transit van in 1965 and co-ordinating regional operations under Ford of Europe from 1967. The Japanese were looking to find increased sales from exports and after a false start were finding some success in the US. The Europeans were in a similar position to the Japanese, each nation having a strong domestic industry searching for export sales. Typically firms would aim to hold 25% of their home market and take a 3% niche of various export markets, which could then add up to substantial quantities. Factories were still not operating on the huge economies of scale that existed in the US, but dominance of home markets compensated for the industrial weakness and permitted a degree of premium pricing.
The British industry had been faring spectacularly well post-war, with a government target of “Export or Die” resulting in 75% of production going abroad. However, this policy was pushed by restricting raw material supplies to those manufacturers who could achieve these high proportions of foreign sales. While this might have benefited the trade balance in the short term, it did nothing to rationalise the domestic industry. Even in 1945 the government was aware that there were too many small-scale producers with too many models and yet there was no sense of urgency to encourage consolidation. This meant that relatively old-fashioned producers like Rover were able to continue unmolested thanks to the singular export success of the Land Rover. Moreover, the Land Rover was only successful in a similar manner to the Ford Model T, opening markets where competition did not yet exist, a strategy that only works until the point when the competition does arrive. Whatever the legendary status of the off-roaders, Rover did not build on the success to create an internationally competitive company or model range. The government also had a tax regime in place that tended to encourage production of cars more suited to the British market rather than foreign ones.
At the same time the Japanese government was putting its automotive companies under gentle pressure to consolidate and find the same kind of scale as the Americans possessed. Germany had also been forced to reconstruct its industry and this meant a chance to plan production from scratch, but it also had the advantage of a large potential home market. By the 1950s the German industry was competitive once again and seeking increasing shares of export markets. This was at the expense of the UK industry, even if the resultant fall from 52% of world motor exports to 19% was still a position to be envied.
Perhaps this continuing relative success sapped the motivation for necessary rationalisation. Car production requires such a high capital investment that the long-term view is crucial to maintain continuous profitability. The Germans and Japanese were putting in place production plans that would bring them up to the kind of scale the Big Three in the US had been utilising to supply their vast home market. The Japanese were also looking at flexible manufacturing as a way of keeping their production loaded with model variants. British Leyland were later to attempt something similar with badge engineering, but their failure highlights the primacy of production scale itself; the variants are there to fill the production capacity, not simply to keep old names alive. If none of them sell in sufficient numbers then there is still no economy of scale.
The British industry was well behind its future competitors in planning for scale economies. BMC had been created in 1952 by the merger of Austin and Morris, but neither was exceptional in international terms and the combined group did not advance the idea of consolidation to any great degree. The two marques retained separate identities and even separate dealer networks. Frank Woollard devised an excellent production system but the sales were not enough to keep the lines busy and make money for future investment.
The company had also fallen in thrall with Alec Issigonis, the genius who had created the excellent Morris Minor of 1948, the success of which gave the designer enormous influence within the company. The subsequent Mini was a miracle of car design but could never have made the company any money and, according to one insider, should have remained a design study basis for a slightly larger car such as the later ADO16. The Mini was being assembled in 3 different locations and Ford calculated that it was losing the company £30 on each one sold. The Issigonis autocracy had also split the company between the high technology front wheel drive of Austin and the more conventional products from Morris.
When British Leyland was formed in 1968 Sir Donald Stokes managed to shunt Sir Alec to one side, but by this time the drag the designers presence had become on the company was just part of a batter of problems. The incoming Leyland management had been aware of poor financial controls, poor product planning and low investment but the management of the new group lacked the cohesion to force through the necessary consolidation. They were also new to the emotive world of cars and mass production. The internecine war now extended beyond Austin and Morris with Rover and Triumph now slugging it out to gain resources. Perhaps these problems were hidden by the continuing dominance in the home market, up to 40% share at times, but profits had fallen well behind Ford, and the share of profit contributed by Austin Morris had sunk disastrously. With Austin chasing the expensive high technology route, but afraid of pricing itself out of the market, these low profits represented funds that were sorely missed. With production spread over nearly fifty sites rather than the half a dozen implied by theories of scale economy it was clear that costs were getting quite out of control.
1971 should have given British Leyland the opportunity to catch up with the opposition by closing factories, reducing the workforce and getting a grip on just what kind of cars it was meant to be making. This was the year when the government loosened credit terms and lowered taxes, resulting in a huge boost to sales of 43%. However, even from under-utilised factories, it is not easy to accelerate output at the same steep rates and with the relaxation in import tariffs many consumers were turning to foreign products. Ford, with its more conventional model range dominated that peculiarly British phenomenon, the company car market. This market was relatively stable and sales increases in the UK could be supplied by Ford’s other production facilities in Europe. British Leyland’s hinterland was the private market, and this was enjoying the most buoyant sales. However, the British company was losing production to industrial stoppages and did not have the same foreign production as Ford to make up the losses. Private buyers now began to turn to foreign marques and imports gained a toehold in the British market. This would not have been so much of a problem if export markets had held up, but here British Leyland was losing out to the same opposition that was eating into its market at home. A steep rise in the value of sterling handed price advantages to importers and punished British exports abroad. This is not to say that the British company was about to be written off, with sales in 1973 of 1.7 million there was cash coming in to support the desperately needed restructuring. However, no one was to know how little time the company had.
The oil shock of 1973 reversed all the gains in sales that had been made in the previous two years. Again this affected the private buyers most of all and those products British Leyland now had on offer, such as the Allegro and Maxi, were not competitive enough even to hang on to those customers that did want to buy British. Industrial unrest and feeble management are often cited as the main factors that undermined the company, but in the first half of the 1970s these were characteristics that blighted the UK industry as a whole. What the company had most lacked was a strong leader who could have forced through the production and model changes that were the reason for the merger in the first place. While the company dithered circumstance hammered the company and reduced the cash that it needed to drag itself back up with its emboldened competitors. Perhaps British Leyland might have been deserving of our sympathy if it had not kicked in a spectacular own goal: it summarily dismissed thousands of small dealerships for reasons of uneconomic size. However, these were the very businesses that kept the company close to its private buyer market, and now there were disgruntled dealers up and down the country bad-mouthing the company and signing up to import franchises.
By 1975 this slow-witted leviathan was on its knees. Don Ryder was parachuted in by the National Enterprise Board and in a remarkably short period of time his report was published. Ryder’s conclusions were not radically different from the company’s own plan: industrial relations were a perennial problem of course, but most of all the company was starved of the cash that was necessary for future investment. An injection of £2000 million would provide the cash for the new products that would put it back on its feet and in turn fund long-term plans. Even the Central Policy Review Staff report that appeared later did not disagree with the faith in maintaining volume production. However, the mistake the Ryder Plan made in implementation was to link funding to improvements in working practices, often leading to costly delays in the product development on which the future of the enterprise truly depended. Neither was the company helped by the financial aid the government gave to prop up Chrysler, thus maintaining a weak competitor and undermining the vulnerable recovery of British Leyland. Yet the strategy might have freed the company from its chains if there had been a product plan to put into action.
Indeed there had been a plan, but it was the offspring of the old, fragmented British Leyland. This comprised of 5 models: the current Rover SD1 and Princess, the ADO88 supermini, a reskin for the Allegro and the TM1 to take on the Ford Cortina. While each one might have been competitive on its own, as a complete range it represented a mish-mash of styles and front/rear drive confusions. It would have made sense if this had been the range that a more dynamic British Leyland had pushed through immediately after the merger, meaning that by 1975 the company could have been proposing a unified line-up representative of a unified strategy. However, since the company had been too slow to rationalise in the first place, and had then been battered by economic vicissitudes, it was perpetually five years out of date. To make the leap forward it had to rip up this product plan and look to the 1980s, even if this meant being lumbered with the current range for a few more years. For this reason we see anachronisms like the Triumph Dolomite and the MGB limping on into the late 1970s, superb products though they might have been in their time.
The new product plan at last saw the company commit itself to front-wheel drive, the area in which it held a technical advantage. This design consolidation would enable the company to behave like a single enterprise, rather than a loose alliance of rivals. The fact that Michael Edwardes as chairman became the centre of public attention at the same time is something of a distraction. Edwardes` real contribution was to push through the vital changes in work practices by sheer force of his personality. He also wrestled with the government to secure the necessary funding for the new models. However, even he had to compromise when confronted with the intransigence of the new Prime Minister, Margaret Thatcher.
The Conservative government was by nature opposed to nationalised industries, and the black hole of British Leyland’s finances epitomised the worst excesses of Britain’s ailing industry. However, the firm was just too big to be allowed to fail at this stage and so, reluctantly, financial support continued. The most important models to bring to the market were the mid-range cars, Maestro and Montego, since these would bring in the cash needed for long term viability. However, Edwardes knew that he could not guarantee the government’s support for that long and so the fateful decision was taken to rush to the market with the model that could be soonest released, the supermini. Appearing in 1980 the Austin MiniMetro was cute and perfectly formed, but it had to carry the immediate future of the company on its back. It could never be a big money earner, small cars never are, but it was vital as an agent of change. The Longbridge factory was refurbished, the unions were pacified and the general public was given reason for optimism. Edwardes also closed down the foreign subsidiaries that were inhibiting the British factories from achieving economic levels of output, believing that foreign markets could be supplied from the UK. Other things being equal all the company needed was time.
If only people could have been more patient and waited for the Maestro/Montego to come first and bring in the money. The Metro pushed their release back three years and so they were already behind the competition on their first day. If they had appeared on the market at the beginning of the 1980s they might have made quite a splash and secured the future of the firm, but instead they were seen as a retrograde step. The delay also opened up a chasm in the company’s production and marketing plans, since their predecessors had been pensioned off some years before. Even if it were possible to temporarily vacate the medium sized sector for three years there was still the economic imperative of keeping the production lines occupied. There was nothing cunning about using spare capacity to host production of a rival’s product, it simply had to be done. Once again Britain opened the door to foreign competition, but this time the company was doing it itself: welcome the Japanese.
Written by Michael Wynn-Williams at Cardiff University
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