As I write, BBC Radio 4’s Today programme is reporting on criticism of the UK Government concerning a £6.5m ($11.3m) bridging loan given to failed carmaker, MG Rover, prior to its collapse. Ministers maintain that it was to give essential breathing space to see if a deal with a potential Chinese suitor could be salvaged. The critics claim it was a bad deal for taxpayers and that the money was only released in a cynical attempt to stave off disaster before the looming general election. In the event, Britain’s last major carmaker went into administration with debts of £1.4bn ($2.43) and the loss of around 6,000 jobs. It was, it seems, the final chapter in the long demise of the Britain's automotive industry. The sorry tale contains, SwelledHead believes, a warning to today’s ailing car manufacturers in the US.
First, some history. At the end of its days, MG Rover sold two brands: MG and Rover, but at one time its originator had been far more prolific. In 1952, when the British Motor Corporation was created as an effective takeover of Morris by Austin, the stable ran to seven marques. The firm’s director, Leonard Lord, now in control of the UK’s bigger car manufacturer, famously commented, “You know what BMC stands for, don’t you? Bugger My Competitors!”
The company’s share of the UK market grew further with acquisitions and mergers. In 1966 BMC bought Jaguar to become British Motor Holdings. Meanwhile, truck and bus manufacturer Leyland Motors had purchased Standard-Triumph and Rover. BMC and Leyland came together in 1968 to form The British Leyland Motor Company. The combined brand portfolio was staggering: Rover, Land Rover, Jaguar, Daimler, Morris, Austin, Wolseley, Riley, Triumph, Austin-Healey, MG and Vanden Plas.
Cost control and marketing at BMC were very poor. The firm’s biggest selling model, the Mini, was calculated by Ford to be losing the company £30 for every one sold. After the Leyland merger some rationalisation followed, but the company had too many factories producing too many inter-competing brands. Quality suffered, especially due to turbulent industrial relations that saw many damaging strikes, and ‘badge-engineering’ – attaching a different nameplate to only slightly dissimilar iterations of the same model – was rife. By 1974 finances were in a perilous position and the Government prepared to take ownership.
Ensuing years saw some brands sold off, and others killed off, while the company itself was renamed several times as it shuffled and reshuffled into various new divisions. By 1988, the company now known as Rover Group was sold to British Aerospace, but financial pressures continued and the firm came into the hands of BMW in 1994. Unable to rein in massive losses, the firm was about to be closed down, but was rescued by the Phoenix Consortium in 2000 and re-launched as MG Rover. Too small to compete in the modern auto industry and unsuccessful in forming joint ventures with other manufacturers, MG Rover foundered five years later.
An excess of brands, badge-engineering, massive financial losses and difficult industrial relations: conditions for failure that are now being seen again, but this time on the other side of the Atlantic. There has been much in the press recently about the woes of the world’s biggest carmaker, General Motors. In the US it sells eight brands (eleven worldwide), but has been highly criticised for its inability to maintain clear and unique identities for each. While quality has improved in recent years, its products are seen as lacklustre and several steps behind more innovative and nimble foreign competitors such as Toyota, Honda and Hyundai. The other US auto giant, Ford, is in slightly better health, but it too is suffering similar problems.
The analogy with the British motor industry is compelling – leviathan organisations unable to break from the shackles of their own bureaucracy to compete successfully against a tide of foreign pretenders. Government intervention meant that the British industry was able to soldier on for an incredible forty years before it eventually succumbed to its inherent failings. It’s unlikely the US Government could, or would be able to do the same for its own automakers.
What future?
Many see the potential collapse of GM as a good thing. Its leaders have come in for condemnation over inaction that will lead to the firm becoming bankrupt. However, Chapter 11 protection would be instated and GM would be freed of the legal responsibilities that make it difficult to force the radical changes that are so very necessary. Leading auto blog, The Truth About Cars, predicts that the end of GM could also signal the end of Ford due to the large number of shared parts suppliers. However events unfold, as with the British motor industry they’re likely to be dramatic and painful, although not so long-lived.
What may emerge from Chapter 11 is unlikely to be the US auto industry in its present form. Hopefully it will create a leaner organisation, perhaps several, that can better compete in a market that has moved on from the days when GM was originally formed. Like Lord’s British Motor Corporation, GM and (to a lesser extent) Ford’s brand-bagging strategies made sense at a time when buyers patriotically bought cars from native manufacturers. Both have seen their market share fall to foreign rivals, and like BMC, GM in particular looks to have failed to restructure adequately to turn this situation around.
The remnants of MG Rover were eventually sold off to Nanging Automotive Corporation, a Chinese car manufacturer keen to gain brands and technology to expand beyond its home market. Such an outcome would be far from palatable to the US public, so herein lies a warning to which GM and Ford must heed if they wish to survive as American companies.
