General Motors is now co-owned by the American taxpayer and labor unions. As a Briton, I find this development astonishing. It repeats the mistakes of the 1970s Labor government, which essentially killed off the British auto industry. America should avoid the same mistake.
By the late 1960s, most of Britain’s famous motor industry names—including Rover, Austin, Morris, Triumph and Jaguar—had consolidated into a “Big Two”: British Motor Holdings (BMH) and Leyland Motor Corporation (LMC). LMC was profitable; BMH was not. BMH was trying to sell cars that reflected the tastes of a bygone era—its Morris Minor, for example, had been designed in 1948. Foreign-owned companies were making cars in the UK that were more to the buying public’s taste, like the famous Ford Cortina, which gave much better performance and fuel economy. Sound familiar?
In 1968, the Labor government encouraged the merger of BMH and LMC into British Leyland Motor Company (BL). This company maintained production of a variety of brands that competed against each other, and engaged in a research and development crash program to develop new cars that people would actually want to buy. The results were the Morris Marina, a car that my family happily bought and even more happily discarded, and the Austin Allegro. Both models sold strongly, on the basis that they were British (huzzah!), but in the end their shoddy design destroyed the reputation of British automaking. Caveat inventor!
Meanwhile, the new company was plagued by terrible labor relations, with a powerful union continuously demanding better working conditions while providing worse service. For example, a former senior officer of the Parachute Regiment, who visited an auto assembly plant as an adviser on leadership, told me that after he saw a notice that said the “tea break” would be scrapped to improve productivity, he and asked a worker how he reacted. The worker replied that he used his drill to add extra holes to the car door to weaken the construction and reducing the car’s working life. The worker believed that this would harm management, but not him. The company became unmanageable and was on the verge of bankruptcy by 1975.
The government felt that it could not be seen to allow the country’s major indigenous carmaker to fail, with the possible result of adding a million people to the unemployment line during a recession. The Ryder Report, authored by leading investment bankers and a former CEO of Ford UK, recommended government investment of over £1 billion—about 1.2 percent of GDP at the time—to save the company, with the government taking an ownership share. This meant an effective nationalization of BL. Initially, the government’s share was overseen by a “car czar,” but in 1977 the government appointed Sir Michael Edwardes as CEO of British Leyland.
Over the next few years, the news was dominated by the attempts by Sir Michael to reach agreement with the unions over restructuring as he sought to assert “management’s right to manage.” He knew that he had to do three things to turn the company around: produce cars that people wanted to buy, increase productivity, and close redundant factories. The unions were very unhappy with the latter two aspects of his strategy. Strike after strike followed.
Eventually, Sir Michael obtained government approval for the closure of the factory at Speke, Merseyside. Thousands of jobs were lost and the new Triumph Lynx design, which was to be produced there, went with them. This led to further trouble at the plant in Longbridge, Birmingham. As Sir Michael observed, while a 1970s German auto industry manager spent 5 percent of his time dealing with the unions, a British manager spent 60 percent of his time doing the same.
All these struggles bought was time. The company was simply not viable. Sir Michael’s idea of a product-led recovery failed. The new designs that eventually emerged from the strife-ridden company were bland and dull. Eventually, BL entered into an agreement with Honda to build Japanese-designed cars. The Thatcher government initially devised yet more bailouts, but then reality set in. BL sold off its assets to people who actually knew what they were doing (at the time). Jaguar was sold to Ford, Rover to British Aerospace. The trucks, buses, and spare parts divisions were also sold off. The rump that remained became the MG Rover Group, but went bankrupt in 2000 and was bought by Nanjing Automobile.
Ironically, today the most productive car plant in Europe is in my home town of Sunderland, where 5,000 workers build 330,000 Nissan cars a year. There are still around 250,000 people employed in the design and manufacture of vehicles in the UK, more than BL employed in Mrs. Thatcher’s time.
The lessons from Britain are clear: If you want to run an auto industry into the ground, panic-driven R&D, strong unions and vast government cash infusions are the way to go.
Iain Murray is Director of Projects and Analysis and Senior Fellow in Energy, Science and Technology at the Competitive Enterprise Institute.
