As Washington contemplates the possibility of injection hundreds of billions of dollars into a failing automobile manufacture, The New York Times looks at a remarkably similar story from Great Britain in the 1970s:
PARIS — A faltering auto giant whose brands are synonymous with the open road. Hundreds of thousands of unionized workers with powerful political backers. An urgent plea for the government to write a virtual blank check.
This is not the story of Ford and General Motors, but British Leyland, a car company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the ’70s and ’80s before going out of business. All that is left of the company now are memories of cars like the Triumph, and a painful lesson in the limited effectiveness of bailouts.
“It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but 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?”
Other experts are sounding the same alarm. “The British Leyland experience is a relevant and cautionary one,” said John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group in New York. “The government got in the business of trying to make a winner out of a structurally flawed company. That’s the risk in the U.S. as well.”
The similarities between General Motors and British Leyland are actually fairly striking:
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
(…)
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.
The fate of British Leyland, and of the billions of Pounds that the British Government wasted in trying to save it, should stand as a stark reminder to anyone proposing that we do the same thing to General Motors.
What is the point of throwing cash at a structurally flawed company without forcing it to take the necessary step — Chapter 11 Bankruptcy — to reform it’s business model and contractual relationships ?
In the end, it seems more likely than not that a bailout of General Motors will end up being a repeat of the British Leyland fiasco, albeit with a uniquely American twist.
