Below is the text of the speech made by Roger King, the then Conservative MP for Birmingham Northfield, in the House of Commons on 13 March 1986.
Many of the headlines in recent weeks have been about the problems facing the British Leyland operation in Britain and the allied factories and businesses which predominate throughout the country. My purpose tonight is to raise points that are worthy of close consideration because they affect the future prospects of that group of companies.
I wish, first, to examine the BL board, the body which has been charged with overseeing the development of a British-owned motor industry which fell on hard times because of many and varied problems in the late 1950s, through the 1960s and into the 1970s. Those problems stemmed from poor management control, hasty reorganisation, poor industrial relations and a failure to invest in the right product line. Above all, although its products were technically reasonable, they left a lot to be desired in terms of quality. The constant problem of under-investment left us prey to the world car industry, especially the Japanese, and the western European industry developed its industry during the same time with the aid of investment and new factories after the war.
The BL board has tended to remain somewhat distant from the day-to-day operations of its subsidiaries. It has allowed sector managers to get on with what they know best—running a business. We understand that there is to be a change in organisation. It was recently announced that Mr. Graham Day of British Shipbuilders will take over what may be left of BL in the middle of this year. Those of us who have been privileged to meet some of the BL executives, especially Mr. Ray Horrocks, question the wisdom of changing the leadership of the board at such a difficult time. Mr. Horrocks has been primarily responsible for the development of the car side of the business.
Under his directorship, Jaguar has been successfully privatised and Austin Rover has been developed from chronic financial difficulty, poor product range and awful industrial relations to acceptable financial efficiency, exemplary productivity and a very good product range.
In 1980 the car side turned in a £250 million loss. In the first six months of 1985 a small profit of some £600,000 was registered. It is too early to get information for the whole year, but it seems that the company has done a great deal better than hitherto. The present problem is a growing lack of confidence in development of the business. Rumours about a tie-up with Ford or any other company has had a dramatic effect on the company’s status in the market. The car business relies on customer confidence throughout the world. Although Austin Rover has only 4 per cent. of the European market, it is able to break even, whereas Renault, with two and a half times Austin Rover’s market share, turns in a loss of about £1 billion a year.
The market has been improved step by step by improving customer confidence in the company’s ability to supply the right vehicles of the right quality when they are wanted. That market has been created step by step as a result of improving customer confidence in the business by supplying the right sort of vehicles, at the right quality when they are wanted by the customer. The relationship between manufacturer and customer has been built up painstakingly over the years, gaining the sort of confidence necessary to develop the market for that range of car products.
It does not take much to reduce that confidence, with a noticeable effect on the market. Commentators would not dispute the fact that since the beginning of talks about a possible Austin Rover group sell-off to Ford, or to any other company, its market share in this country dropped by about 2 per cent. in the first two months of this year. The winter months are critical for the business, and sales are hard to get. The compounded problem of lack of confidence in the business has a knock-on effect. The problems do not stem simply from reaction in the home or indeed the European market. There have been problems further overseas.
Mr. John Smith (Monklands, East)
Why does the hon. Gentleman not come straight out with it and say that the major problem facing the Austin Rover group is the Government’s policy to encourage discussions with Ford? Why does he not have the courage to criticise the Government for what they are doing to Austin Rover?
I do not know whether I am grateful for that intervention. I suggest that the hon. Gentleman waits for a few moments, and I shall have some constructive comments to make on that issue.
The problems of Austin Rover in moving into profitability stem from its lack of across-the-range models. It is strong in the small and medium-car sector, but not in the big executive cars, which in car parlance mean big profits.
The forthcoming development with Honda of Japan of the Rover 800 series should go a long way to improve the market position and profitability of the business, nowhere more so than in the United States. There are great hopes for a high level of product acceptability. Customer acceptance at car clinics has been almost uniquely high in relation to the product on offer. It is clear that the Americans, based primarily on their knowledge of Jaguar and their growing acceptance of that company’s products, are ready to buy a British executive-type car and willing to pay a premium price for it.
The structure set up there by the president of Austin Rover America, Mr. Raymond Ketchledge, is such that sales of many cars should be obtained shortly. I understand that the cars that will be available for the United States will be only 50 per cent. of what the American president of the company said he could sell and would want. The primary concern of manufacturers is to ensure that all the cars that go to the United States, although not the number required, are fit for sale in that market, and of the high quality which that market rightly demands. I am certain that the factories can produce them.
All this solid, good work will improve the fortunes of the company. There is no doubt that American dealers are increasingly concerned, after rejecting Ford or General Motors dealerships, or any sort of dealership, because they do not want that particular product, that they might be dealing with a company partly owned by Ford or some other multinational, which they would find highly unacceptable. Some of the new dealers in America are hesitant to sign on the dotted line and draw up an agreement with Austin Rover until they are satisfied beyond all shadow of doubt that they are dealing with Austin Rover and not a derivative of a multinational.
Unfortunately, the rumours continue. Although we understand that no talks are envisaged with Ford, this week’s Autocar has a headline in its business section, “Ford ready to reopen Austin Rover negotiations.” Bob Lutz, the chairman of Ford Europe, said that his company was still interested in owning the company and was keen to continue negotiations. Mr. Lutz is clever, because he has decided that all he must do is to say that he is interested in purchasing part or all of Austin Rover and he can suddenly knock 2 per cent. off its home market share. He can shake customer confidence in Europe and the rest of the world as a result. It is hardly coincidental that Ford seems to be doing a little better in the market after its recent outbursts about being interested in getting its hands on Austin Rover.
We must have a clear understanding of the ownership of the business and whether it will be sold to or merged with another company. For the sake of the market place, sales and jobs, such rumours must not be allowed to continue. In the midlands we look with growing horror at the hesitancy and lack of confidence of the company. We hope that, at least in the medium term, the company will be allowed to develop as it is now, seeking to collaborate with overseas manufacturers, as it is doing with Honda, Volkswagen and Peugeot, to continue producing products which are increasingly accepted, not just in the United Kingdom, but in Europe and the rest of the world.
Production at the Austin Rover plants is increasing. In 1985 about 476,000 cars and car-van derivatives were produced. Although most commentators would say that that is below the level at which the company would generate enough income finance investment, it is getting close to that level. This year, two major events should help the company to achieve production of about 550,000 units. I have already mentioned the introduction of the Rover 800 series. The other event is the joint venture with Honda to produce the Honda Ballade car on the same assembly lines at Longbridge in my constituency as the Rover 200 series. The production figures for that model are modest, but an additional 10,000 cars a year would be extremely useful, bearing in mind the fact that one need only produce them, put Honda badges on the front and let Honda sell them in the European market. Gradually, production will exceed the all-important barrier of 500,000. I hope that it will continue to increase and improve the viability of the business.
Harold Musgrove and his team have worked extremely hard. Indeed, when the story of Austin Rover is written, it will include accounts of sacrifices by employees. I have heard that employees’ marriages have gone adrift as a result of the work that people have done to turn the business round. When that account is written, it will be considered a success story. Of course the Government invested a large sum in the business, but it is equally true that they receive a great deal in return through income tax paid by the workers at Austin Rover and components suppliers and through company taxation.
A primary tenet of Conservative thinking is that one must speculate to accumulate. The time is rapidly approaching when Austin Rover will be able to accumulate the income necessary to provide for new models, and for the new investment which is essential for its continued well being. Again, this would not necessarily be done by Austin Rover on its own, because that is not the way in which a car company of the standing and size of Austin Rover would develop today. It would be done in conjunction with other operators and manufacturers throughout the world, buying the best of the bits from elsewhere, producing them perhaps under licence here in its own factories, collaborating with other manufacturers in the market place, sharing its manufacturing facilities, but selling its cars through individual sales outlets.
This is what Austin Rover will do with its Rover 800 in Australia, where it will be produced on Honda’s assembly lines, and the Honda Ballade and the Legend, Honda’s version of the 800 series, will be produced on United Kingdom assembly lines for distribution throughout Europe.
This is the way forward. It is an extremely sensible way. It is one that the company should be left to pursue on its own, so that it can develop its own future, not just in the market place, but with its own work force as well, members of which look with envy on the opportunities given to their Jaguar brethren who invested in their own business and have seen their investment grow quite staggeringly over the past four years. From those to whom I have spoken, I am certain that they would relish the opportunity in two or three years’ time to take part in the ownership of the business, working together as owners and part-shareholders towards its continuing prosperity.
Mr. Ray Horrocks told one of our Back-Bench organisations the other night that he considered this a distinct possibility, that the business could be viable, working in conjunction with others, for privatisation, so as to allow the employees a share of the business. Again the question must be posed: will the market continue to have confidence in the development of that business; confidence, alas, which has been badly shaken over the past few weeks? For that the company is already paying a very heavy price. Only a firm commitment by the Government that they will continue to allow the business to develop on its own, using the management that it possesses to make the right and appropriate decisions for the various markets of the world, will allow that confidence to be restored totally so that the company can recover the market share that it has unfortunately lost in the past few weeks.
The bid by General Motors for another portion of the business—the Leyland Truck, Land Rover and Freight Rover organisation—has equally dominated the media recently. Bedford, General Motors’ truck subsidiary, is as British as British can be, having been here for some 45 years or so, producing trucks. The British Army rides in its trucks now, just as Montgomery rode to El Alamein, so there is no question but that that company is a British business.
Unfortunately, although General Motors has invested large sums of money in this country, these days one has to invest very large sums of money indeed to maintain a market share. General Motors’ investment in Europe has largely come to be concentrated in countries like Spain and Germany, where more cars are produced than are produced in this country.
Although General Motors has, therefore, invested money in this country, it has not been enough to stem the rising tide of imports from other General Motors factories. One looks still with concern at the low British content of those Vauxhall cars that are made in this country. It is a job to justify 50 per cent. United Kingdom content in those products, even if one takes into account such things as heating and light and power in the factories that are producing them. The result of this investment policy is that Bedford has been unable to invest in a new, modern range of trucks and its market share in this country—where once upon a time it was the dominant truck manufacturer—has dwindled to no more than about 11 per cent. One can compare this with Leyland Truck, which has had an enormous amount invested in it and which last month reached 16·4 per cent. of the United Kingdom market.
Leyland Truck faces problems. It would be no good ignoring the fact that the truck market is oversaturated within western Europe, with some 40 per cent. over-capacity. Some rationalisation would be sensible, and to everyone’s advantage. General Motors’ approaches to Leyland Truck are sensible and make a great deal of commercial sense. The management of Leyland Truck, and possibly even the work force, but certainly the dealers who handle the vehicles, would welcome a relationship so that the two combined organisations could well command about 25 per cent. of the United Kingdom market, which would turn that business, concentrating as it would, presumably, on the Leyland Truck factory in Lancashire, into one that was rather profitable, and certainly would act as a great stepping stone to re-establishing the British truck industry in European and world markets.
It has been said by many people that General Motors is interested in Land Rover and Freight Rover because if it were to purchase Leyland Truck it would find itself in some difficulty about what to do with its vacated Dunstable assembly lines, which would obviously come to pass, because rationalisation is the name of the game and production capacity would probably have to come out from there.
It is not necessary to expand Land Rover output at Dunstable or to move the Freight Rover van factory from Washwood Heath to Dunstable to make up any shortfall. General Motors could start assembling some of the 50,000 Vauxhall Novas that are brought in from Spain every year, or, indeed, improve its United Kingdom production levels of Cavalier and Senator cars which currently come from its Belgian and German factories. There is plenty of opportunity for that company to step up its investment in car production. I suggest that it turns its attentions to finding work for the vacant factory space in Dunstable, if Bedford trucks are to be made in Leyland in Lancashire. The company should look closely at expanding car output there.
In negotiations with people such as Bob Price, the head of General Motors, one is aware of an affable and knowledgeable person who I feel sure is open to firm suggestions from the Government as to how this matter can be resolved to the satisfaction of all. If the Government were to talk meaningfully with Mr. Price and his colleagues, a satisfactory outcome for the present purchase of parts of BL could be arrived at.
I do not go along with the view that General Motors has much to offer Land Rover or Freight Rover. A massive amount of investment has been made by the BL board over the past 10 years in Land Rover production at the Solihull plant. Brand new factory space was built in the late 1970s and as a result of the closure of eight or nine satellite factories and the bringing together under one area at the Lode lane factory in Solihull, Land Rover production is now completely in house on one site and ready to exploit that advantage with better productivity and lower manufacturing costs.
Perhaps it is a bit early at this stage to reach any conclusion as to how Land Rover will develop until it has had a chance to produce vehicles for two or three years on its total site complex and we can see the sort of financial progress that the business is making. Certainly there are grounds for great optimism, after a year or so of setbacks, when the company faced real problems in overseas markets, particularly in Africa, where it was battling with the strong problems of a petro currency in Britain, which affected all exporters. That is now not quite such a disadvantage because of the falling price of oil, which has once again put manufacturing back to the forefront of our exporting achievements.
The opportunities for Land Rover, and for most of our motor industry now to get to grips with the export market, are unparalleled. The concern that we express is that we should now let those companies develop, given the challenge and the opportunities that they have, before we decide whether we want to sell them to some overseas buyer from America or anywhere else, or whether we should sell them to the employees. That would be the most sensible policy to pursue. I do not doubt that the privatisation of Land Rover, along the lines of Jaguar, could be a realistic proposal within the next two years or so, given the potential of that product and its potential in America.
Many people criticised the company for not having exploited its American potential before, but the history of Land Rover is such that it hoped it could exploit the American market. During the 1970s, British Leyland’s main concern was to encourage car production for export, principally to the United States market, to tackle the problems of Jaguar. In those days the Triumph sports car, the MGB sports car and so on were exported to America and all the resources were used up on those product lines to ensure those cars reached the American market and there was nothing left for the fairly small number of Range Rovers which had been earmarked for that market. Therefore, by default Land Rover was never able to exploit that market.
One of the results of Land Rover’s semi-independence to operate within the British Leyland organisation is that it has been working hard to get the Range Rover accepted in the American market. It is not just a matter of offering a vehicle to that market; it has to reach and maintain the federal emission standards, the standards of construction and so on, all of which take a considerable time to achieve.
Most people would suggest that the best way to go forward is by the use of specialised dealerships which are being set up in America. The Range Rover is a particularly expensive and exclusive vehicle, with a specialist attraction. Whether it will ever find a sensible position in the market and be sold alongside Cadillacs or Chevrolets is open to a wide degree of discussion.
However, taking the advice of Porsche, which was not slow to exploit the American market, the correct way to exploit the market is to seek out specialist dealers—a handful in American terms, some 40 to 60 dealers—to major on the product concerned in a big way. That is what Jaguar is doing at the moment. Having the right investment, the right marketing factor and the right sales expertise is the way to exploit the American market. It should not be done by saturation coverage, which a tie-up with a multinational may or may not provide. Range Rovers are an exclusive British product and need to be marketed in that way. That is the way that Porsche, Mercedes, BMW, Jaguar and Rolls-Royce are seeking to exploit the American market. I think that that is the way that Land Rover ought to develop, given the opportunity so to do.
I shall deal with the problems of Freight Rover. We hear a great deal about the problems of inner city factories and the problems of holding and maintaining work within the inner city area. The Government have invested considerable sums of money, and continue to invest such money, to find work within the inner city areas not only for our young people, but for all sections of the community. An inner city factory is like a gem. It needs to be looked after and kept. It is a priceless asset. Freight Rover is such a factory in Birmingham, at Washwood Heath. It provides about 1,800 jobs for the community. Not all the workers emanate from the inner city area, but a considerable number of them do.
Freight Rover shares a factory with Austin Rover and produces the Sherpa range of light vans. It has achieved a significant place in the market, with growth of about 2·4 per cent. in a very competitive market over the past 12 months. It is a financially profitable organisation and its work force has maintained a level of productivity and dispute-free performance second to none. The workers have made particular sacrifices, as they recognise that Freight Rover is the only job they have and probably the only job they will keep, if at all possible, because of the dearth of opportunities elsewhere within the area. Therefore, we attach great importance to the maintenance of Freight Rover within the area. It is not just the provision o jobs, but the product itself. The years of development stand the test in the market place. It is a product which is wanted and which is finding growing acceptance, not just in the United Kingdom, but in the European markets.
It is not a push button, robotic factory. The vans produced are bespoke vans—built to the specifications of customers, such as the Post Office, British Telecom, the civil defence organisations and the Army. Those organisations buy a van with umpteen additions, with special brackets, special hinges, and all the rest.
I worked in the van factory with Morris Commercial before it moved to Freight Rover. A standard van used to be taken from the assembly line to a special building. Holes were drilled in the van to take special brackets and fitments and extra doors. The vehicle was then sold. The trouble is that every time a hole is drilled in a vehicle once it has left the assembly line, a rust point is made. That cannot be stopped.
The advantage of fitting the bits and pieces on the assembly line and rustproofing the whole van—Freight Rover pioneered a brand new rustproofing process, which has been copied by many other commercial vehicle producers—is that the vehicle will maintain a six or seven-year rustproof period. That is extremely desirable and acceptable to the customer and gives the company a niche in the market place which other more robotic-oriented manufacturers of vans cannot provide. Robots cannot be taught to fit a little bracket here or there—it must be done more or less by hand. That is not to say that the company is lacking in technology. It has what it describes as “islands of technology”, where robots are used for the basic welding of sub-components, body sides, and so on. The labour content is somewhat higher than in comparable factories because of the product that the company seeks to provide.
There is no doubt that if General Motors were to become involved in the business it would look carefully at Freight Rover. It has told me that it very much likes the prospect of having the opportunity of selling the 3½ tonne Sherpa van, which is only two and a half years old and would fill a gap in the market for its Bedford range. However, one cannot foresee the possibility of GM making those vehicles at Washwood Heath. It makes no sense to GM to share a corner of one of Austin Rover’s factories, producing vehicles in conditions which are not ideal. The factory space is cramped. One will not find any plush carpets, potted palms and twinkling fountains at Freight Rover. One will find a fairly compact factory in which every square metre of space is used. That is how it should be in a successful factory. The empty space of tiled floors is not a recipe for success. One looks to see how well organised and compact a factory is. Freight Rover is certainly that.
General Motors’ ownership of Freight Rover must have grave consequences. General Motors has not been able to spell out its exact future for the business, saying only that the workers there may be deployed to Land Rover production at some stage. GM has not been able to assure us categorically that jobs at Freight Rover will be maintained.
What is the possibility of a management buy-out of Land Rover and Freight Rover? We have been assured that the merchant bank Schroder Venture, has come forward with the capital. It is confident that the business, according to market and sales consultants, can and will be a viable alternative. We have been assured that it can proceed on its own, funding its own resources with the possible introduction, within two years, of extra capital through partial employee participation and in the sale of shares to raise £50 million.
The bank is confident that the business can find the funding necessary to produce new models. There is a question mark over this because Freight Rover has new models which have been developed in the past three or four years. Even GM concedes that there is no immediate intention of providing new models. Of course all companies have to develop their existing product range and refine it ever further, and Land Rover is no exception. It is certain from the statements by Schroder Venture and the management buy-out team that they can find the resources to develop the new models. Freight Rover needs £80 million to develop a new van range for its introduction in 1990–91.
That might be a large sum, but we must remember that it will be spread over a five-year period. That sum of £80 million will last in product terms for more than 20 years. Unlike the car business, where the vehicles must be updated every four or five years, a van will stay in production for something like a quarter of a century. Indeed, the existing Sherpa van is a derivative of a product that first saw the light of day in 1958 and, far from being unacceptable in the market place last year, the Sherpa had a higher market share than it has enjoyed in recent times.
The van market, therefore, does not change in quite the same way as the car market. The expenditure of £80 million for a product which will have a life of some 20–25 years is, I would submit, a sensible business arrangement and a sound investment.
One must express concern, if one carefully examines the consequences of a GM buy-out, for the future opportunities for Austin Rover dealers who depend on a freight van and Land Rover products to supplement their car sales. The loss of a van range and the badging of it as a General Motors-Bedford van, as it might possibly be called, is one which would be difficult for the dealers to accept. That would reduce their profitability and open up the market again to a Japanese derivative, which would come in to take up the gap in the market place left by the Sherpa van. We are not in the business of encouraging any further Japanese imports into this country when we have our own, acceptable United Kingdom-produced products.
The future for the business as it stands is extremely good. The prospects are better now than they have been. General Motors’ involvement in Leyland Truck can only be commercially sound and is welcomed generally by all those involved in the business. I would submit that GM probably needs Leyland Truck as much as Leyland Truck needs the additional market and financial investment of GM. However, when one considers Freight Rover and Land Rover, it is hard to see on balance what benefits GM can bring to those organisations. It is true that they have the investment muscle but, alas, their history in this country is such that that investment muscle has not been used in the way that it ought to have been to create the jobs and products within this country.
Although GM has invested quite a substantial sum, an awful lot has not been done by that concern. That leads one to have grave doubts about its commitment to Land Rover and Freight Rover in the future. The management buy-out scheme is ready and able to take on the challenge and I believe that it should be backed. A work force in the west midlands of some 10,000 people is employed at Land Rover and Freight Rover. It has worked incredibly hard over the past three or four years to turn these businesses round. There is not one family in Birmingham that has not been touched by unemployment, rationalisation and change. Land Rover is the only major product range that the city has to manufacture and sell and we are rightly proud of it. When we look at our colleagues at Jaguar and see the results of their work, we consider that the work that we have put in as a city, an area and as a region in turning these businesses round means that we deserve the right to participate in their future as they develop.
This Government, above all others, have concentrated on the opportunities of creating a property-owning democracy by selling council houses and, good gracious, we have sold a lot in Birmingham, Solihull and elsewhere. We should extend that property owning democracy into a business-owning democracy. The thousands of workers at Land Rover and Freight Rover—and eventually at Austin Rover—should be given the opportunity of taking their place in the sun alongside their colleagues at Jaguar and so belonging to, and owning a part of, the company, working for its viability and its future. That is an opportunity that we should not pass by.