Decline, fall and a modest resurrection

Britain's car industry has suffered terribly. But it is probably through the worst, says Peter Rodgers

When the British Motor Corporation was formed more than 40 years ago from a merger of two famous old names, Austin and Morris, it was the largest car company outside America. The worst part of the history of increasing competition, under-investment, bad marketing and dreadful labour relations that came to typify the British-owned motor industry was that the outcome was never inevitable, and failure might well have been reversed at several critical points.

BMC and its successor companies, British Leyland and Rover, slid backwards in the league tables despite receiving more than £2bn of state aid in the 10 years to the mid-Eighties.

Yet as Chrysler has shown in the United States, inefficient production, dud models and enormous losses do not always have to be fatal, given dynamic managers, supportive owners and a workforce convinced that change is necessary. The one-time basket case of the US automobile industry now has $7bn cash in the bank, a pot of honey that last week attracted a $22bn takeover bid.

In the mid-Eighties, even British Leyland began to look seriously competitive again after a decade of rationalisation that included the loss of more than 80,000 jobs and the closure of five large car plants.

Its achievements were all the greater because it had been through a deep recession that slashed demand and provoked a price war between its biggest UK competitors, Ford and General Motors' subsidiary Vauxhall.

But BL had its unwilling shareholder, the British government, to contend with. Margaret Thatcher could not abide a company that to her was a symbol of all that had been wrong with British industry. She was against state ownership in principle, and any emotional attachment she may have had to continuing British ownership of an important part of the car industry was weakening rapidly. Ray Horrocks, then chairman of the Austin Rover division, described to a Commons committee in 1986 what he called the "cruel and shameful persecution of British Leyland."

That year the government attempted to break up and sell BL to foreigners: truck manufacture was to go to General Motors and cars to Ford. The Ford talks broke down over detail within three days of announcement, and GM withdrew in a huff after public outrage forced ministers to withdraw Land Rover from the sale.

Shortly afterwards British Aerospace volunteered to take BL off the government's hands for a song. This was politically popular, because the public still preferred a British solution. But BAe was soon to face difficulties of its own from which it is only now emerging, and could not afford to give BL, renamed Rover, the backing it needed to develop its chosen strategy of high quality and relatively low volume. The sale to BMW was as much to secure BAe's precarious future as Rover's.

The British government's priority by then had become investment and employment in the UK, not protecting national ownership. While Rover was scorned, and Jaguar left to be taken over by Ford in 1989, the Japanese were increasingly assiduously courted by government officials.

Honda had paved the way in 1978 with an agreement under which BL built cars to its design, and a decade later it bought a fifth of the British company, successfully helping it to modernise. But the key developments were the Japanese "transplant" factories of the mid to late Eighties, set up to get round European Union quotas on shipments of Japanese cars. The Nissan plant near Sunderland was announced in 1985, followed by Toyota, near Derby, and a Honda engine plant in Swindon. By 1999 their combined output is expected to be near 1 million cars a year.

Japanese management methods have influenced British companies and the component-supply industry has been forced into enormous leaps forward in quality that have made Britain as a whole more competitive and done wonders for the trade figures. But if continental fears are proved right, the transplants would be better described as Trojan horses. The Japanese in the 21st century could have as big a stake in European car manufacturing as the Americans now have through subsidiaries of Ford and General Motors. This will benefit Britain, now that it has been through the pain of adjustment to foreign ownership of its motor industry. The rest of the EU is right to fear the effects.