Failed Auto Bailout – A Brief History Of Leyland Motor Corporation

by Mike Holman

car-wreckThe largest auto company in Britain at one time was called the Leyland Motor Corporation which eventually became British Leyland after being nationalised. In 1986 it became Rover Group.

It started in 1896 as the Lancashire Steam Motor Company in the town of Leyland and became Leyland Motors in 1907. The company was quite successful and in the 50’s and 60’s took over quite a few other auto companies.By the 70’s however things weren’t going so well. This paragraph is taken directly from Wikipedia

The BLMC group was difficult to manage because of the many companies under its control, often making similar products. This, and other reasons, led to financial difficulties and in December 1974 British Leyland had to receive a guarantee from the British government.

The Ryder Report was a report created for the British Government in 1975 that recommended bailing out British Leyland with approximately 1.5 billion pounds sterling which was a bit over 1% of GDP at the time. Failure to do so would result in the car company failing and about 1 million workers becoming unemployed. The report also suggested that the company chairman Donald Stokes should be replaced.

Under Thatcher there were more bailouts even though Thatcher herself admitted that the long-time viability of the company was very much in doubt. The market share had fallen from 35% to 16%.

“Closure would have some awful consequences. But we must never give the impression that it was unthinkable. If ever the company and its workforce came to believe that there would be no end to their demands on the public purse.”

Thatcher was skeptical of the ability of management to engineer a turnaround

“BL’s annual plans always forecast major improvement but every year things seemed to get worse…”

Thatcher on yet another cash infusion

“The political realities had to be faced. BL had to be supported … and, most painfully, we provided £900 million.”

Leon Brittan, a top official in the government of Margaret Thatcher

“The lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”

British Leyland (now called MG Rover) went bankrupt in 2005. In the end most of the original jobs were lost and the only saving grace was that the job losses were spread over 10 years instead of occuring all at once. The cost was $16.5 billion US$ (in today’s dollars).

Summary

The bailout of Leyland was a complete waste of money.  Unfortunately the more I read about the great Canadian and American car bailout, the more I think that the taxpayer is going to get screwed and the jobs will be lost anyway.

Some other articles

Open Market

New York Times

National Post

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{ 5 comments… read them below or add one }

1 Nurseb911

But just look at all those pretty heart-felt commercials GM has on TV stating that, “We’re not going out of business, we’re getting down to business.” Doesn’t that make you feel all warm inside?

Oh…wait…they’re paying for those commercials with OUR TAX DOLLARS!!!

2 Four Pillars

Nurse – Last year Mark Cuban wrote an interesting post on Chryler who took out a full page Wall Street Journal ad thanking the public.

I guess GM didn’t learn from that fiasco.

3 Blogging Banks

FP,

Here’s why the bailout is important “In the end most of the original jobs were lost and the only saving grace was that the job losses were spread over 10 years instead of occuring all at once. ”

Industries come and go. Think about Bethlehem Steel, which was once the second largest steel company in the US only to go bankrupt in the very few months of the 21st century. What governments try to do is soften the blow to the economy. I would much rather have one million unemployed workers in 10 years and 100,000 jobless today, than 1 million unemployed workers today. In 4 years someone else could be rulling the country, so that’s their problem 😉

4 Four Pillars

BB – I agree that spreading out the losses is a good thing, but at what cost? At some point it might be cheaper to let the company fail and pay extra unemployment insurance to help out those workers. Maybe pay for retraining etc.

5 Mr. Cheap

Very interesting post. The more things change, the more they stay the same.

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