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What We Can Learn from the Death of the British Motor Industry

Bad managment, labor and government wrecked a global powerhouse.

By Britt Combs | The McDowell News

Published: November 18, 2008

For nearly a century, automobile manufacturing in America has been the torch-bearer of industrial might. Whenever American industry is mentioned, the mind instantly goes to Detroit and the "Big Three" of General Motors, Ford and Chrysler.
It is almost unthinkable to imagine a car market without domestic builders at the forefront of the industry, yet that possibility is very real today.
This week, Congress is hearing from industry executives and leaders of the United Auto Workers lobbying hard for a $25 billion bailout, in addition to the $25 billion the government gave them in September. Congressional Democrats want to dip into the massive $700 billion October bailout budget to do that, but the Bush administration opposes the idea. Treasury Secretary Hank Paulson urged Congress on Tuesday to pass separate legislation to come up with the latest $25 billion.
Critics say the bailout is throwing good money after bad, and nothing can be gained from propping up companies who cling to a flawed business plan.
As Washington considers the next wave of bailouts, aimed at delaying the seemingly inevitable day of reckoning, it's useful to consider the fate of another nation's automobile industry.
In the mid-20th century, the British car industry rivaled that of the United States. When Austin and Morris merged to form the British Motor Corporation, it was the fourth-largest manufacturer of automobiles in the world, behind the Big Three of Detroit.
It had been built up from a late start. In the 19th century, the British government had outlawed "locomotives" from the public roads. By the time the law was repealed in 1896, Germany, France and the U.S. all had well-established auto industries.
To make matters worse the government saddled the industry with a new car tax based on cylinder bore and ignoring stroke, forcing builders to produce slow-revving, tractor-like engines.
A plethora of gifted designers and the highly skilled British workforce, industrialized for decades, overcame these hurdles to such an extent that dozens of makers thrived, employing hundreds of thousands. Their cars were the first to be imported to the United States in great number. They were the first foreign makers to establish dealer networks in America, years ahead of Germany's Volkswagen.
They fell from that advantageous position to virtual extinction by 1980.
The industry was dominated by rich old men, set in their ways, committed to a business plan that had served them well in the 1920s and '30s, unwilling to accept the reality of a changing market place.
A contentious work force aggressively squeezed the industry for all they could get. They frequently went on strike, and resorted to "go slow" tactics and a cultivated an indifference to quality that could almost, in some instances, be described as industrial sabotage.
The government encouraged, and sometimes even forced, unwise mergers of competing brands. BMC merged with Jaguar, then with Standard-Triumph.
Pressure from Japanese manufacturers forced the industry's hand and, rather than reinvesting in quality or technology, it resorted to further mergers. By 1970 virtually all the major British names were under one roof, now called British Leyland. Each merger led to "redundancy" (lay offs) and the workforce became increasingly unhappy.
Like Americans, the British could not imagine their once proud motor industry declining. They believed they were "too big to fail." Like America, they clung to the notion that their business strategy was "fundamentally sound" even as their market shrank and debts piled up.
The government eventually took over British Leyland. They were unable to revive the company. The debt now underwritten by taxpayers was crippling to the economy. Inflation ensued. Parliament members were unwilling to face the political consequences of belt-tightening until it was too late. Facilities were closed. Whole towns were thrown out of work.
The British taxpayer was left unemployed, responsible for years of accumulated debt and nothing but some old abandoned factories to show for it.
Foreign companies moved in to sift the rubble. BMW bought the rights to the Mini and, amazingly, have done what no Britton had done in 40 years; turn a profit building British cars. Sensible management and attention to quality and the wants and needs of the market market did more than all the government bailouts and restructurings ever did.
Washington does not know how to run a motor industry. A takeover would be a disaster. Detroit management has been incompetent for too long. The UAW has gotten so many concessions they have priced themselves out of the market. American unit costs are the highest in the global industry. No business can survive when they let themselves get into that position.
The workers need to accept cuts in pay and benefits. Management needs to be fired by their boards, even without golden parachutes. To bail the industry out without those concessions would be throwing our money in the street.