Wednesday, November 19, 2008

History repeating itself

The New York Times reminds us of a similar situation 30 years ago.
For Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales, the trajectory of General Motors is reminiscent of British Leyland not only because of the former’s decision to seek aid to avert bankruptcy, but also for its slow, seemingly inexorable loss of market share. “Both had a history of being the biggest in their market but couldn’t adapt as they lost sales,” he said. “They couldn’t get customers back.”

Historically, British Leyland’s roots stretched back further than Henry Ford’s Model T. The company controlled 36 percent of the British market well into the 1970s, with mass-market brands like Austin and Morris and premium lines like MG and Jaguar. But rising competition from Japanese and German automakers, shoddy workmanship and a breakdown in labor relations brought the company to near bankruptcy by 1975, Mr. Rhys said.

Michael Edwardes, who took over as British Leyland’s chief executive in November 1977, recalled that when he joined, no one even knew whether individual brands were profitable. “It was a farce — no one knew what the costs were,” he said.

As it turned out, every MG the company sold in the United States resulted in a loss of $2,000 for British Leyland.

Wildcat strikes consumed more than 32 million worker-hours in 1977, and the company became a symbol of labor strife, with some employees walking out the door with spark plugs in their coat pockets and engines in the trunks of their cars, Mr. Edwardes said.

Mr. Edwardes immediately began reducing the company’s work force of roughly 200,000 — to 104,000 within five years — and closing 19 factories. He appealed to the Thatcher government for aid, arguing the money was needed if British Leyland was going to be able to afford to lay off workers while investing in new models.

Eventually, the government put up £3.6 billion, equal to £11 billion in today’s money. But the rescue did not do much to preserve British Leyland’s labor force or market share in the long term.

By the time it received its last government infusion of cash in 1988, Mr. Rhys said, British Leyland’s market share had slumped to 15 percent. British Leyland evolved into MG Rover, which was eventually acquired by BMW, then spun off, finally going bankrupt in 2005.

According to Mr. Rhys, just 22,000 workers remain at British Leyland’s successor companies, about 10 percent of its work force in the mid-1970s.


Despite the British experience, the case of Renault, which combined fresh money and new management in the 1980s, showed that government bailouts can be beneficial.
Lessons from Renault:

1. Cut costs by
a. Get out of non-core business

b. Lay off workers (if the UAW allows and/or at the cost of your life)
2. Privatize

Scare tactics used by the Big 2.5:

The U.S. Auto Industry & the Ripple Effect from GM blogs on Vimeo.

The Center for Automotive Research is a nonprofit research organization with industry, labor, academic and government ties. The 1 in 10 jobs claim is debunked here.

The case against the bailout has been made eloquently by Megan McArdle. The bailout is the Broken Windows Fallacy all over again. As Oliver Cromwell memorably said to the Rump Parliament
You have sat too long for any good you have been doing lately ... Depart, I say; and let us have done with you. In the name of God, go!
To GM, Ford and Chrysler, go to Chapter 11 or if that is not possible then go to Chapter 7, but In the name of the Taxpayer, go!

Update, November 20, 2008: The video on vimeo seems to have been removed. Youtube saves the day:

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