Lecture 2 – The British Motor Industry:

Decline and Fall

The significance of the motor industry:
 The significance of the motor industry – Output:
o In the 1960s, motors directly accounted for over 5% of industrial production and
indirectly for more than 10%.

 The significance of the motor industry – Jobs (1974):

Motor manufacturing 500,000

Supply industries 325,000
Sales and repair 435,000
Total employed 1,260,000

o Plus, additional employment in taxi, haulage, petrol and insurance sectors.

 The significance of the motor industry – Exports:

o Net exporter until 1977.
o Accounted for more than 10% of exports between 1952 and 1977.

 The significance of the motor industry – Linkages:

o Backwards to component suppliers
o Forwards to many other industries that directly rely on the motor industry
 Taxi, bus, freight, insurance, repair, maintenance, fuel supplies, road
building, etc.
o “no other product yielded so rich a harvest of forward and backward linkages” David
Landes (1969)
Motor industry timeline:
Motor industry timeline – Early years (pre-war):

 Pre-1914: Britain lags behind US and much of Europe:

o Market is very small.
o Cars a luxury, not a necessity.
 Cars were made to order with no economies of scale.

Motor industry timeline – 1918-45 (inter-war period):

 Big decline in the number of firms in the 1920s.  Small number of firms w/ most of the
market share.  By 1939, six firms dominate (90% output).

 Motors become more common (growing demand).

 Britain is the European leader.

 Britain’s relatively high production levels partly driven by exports.

 In 1931 Ford opens Dagenham (East London) plant:

o Largest non-US car factory.

o 200,000-unit capacity exceeded total German car output.

o Ford chose the UK because the country was good at car production. (Perhaps due to
earlier success in bicycle industry).

Motor industry timeline – 1918-45 in global context:

 Car ownership growing.

 Britain is European leader but well behind the US:
o US was more populous, richer, less urbanised, much larger and lacking in public
transport.

Motor industry timeline – WWII:

 Car plants used for armaments, received much new investment.

 1945 car production capacity was 20% higher than 1938.

Motor industry timeline – Post-war history:

 A time of rising labour problems, poor productivity, market share loss and mergers.
 Culminates with the creation of a ‘national champion’ – British Leyland in 1968. *
Motor industry timeline – Poor post-war industrial relations:

 Multiple unions (legacy of craft unionism).  Increasing opportunities for friction, e.g. one
particular union holding operations.

 Two-tier nature of bargaining (role of shop stewards).  Needing to negotiate locally and
nationally, potentially leading to friction.

 Difficult shift from piece rate to day rate.  Impacted the incentives of workers, e.g. workers
were no longer Incentivized on potential issues (workers are paid regardless of the quality).

 Poor management (management is paid regardless of the quality of the operation).

Motor industry timeline – Government policy post-war:

 Industrial policy favoured big companies:

o Belief that they would be more internationally competitive.
o Focus on perceived economies of scale.

 Creation of Industrial Reorganisation Corp (IRC):

o Created by the Labour government of Harold Wilson in 1964.
o Belief that market forces were not enough to aid British business. And government
role necessary.
o Designed to promote merger activity in sectors deemed too fragmented to compete
internationally.
o Could inject government funds into merged firms.
o Active in many sectors, including motor industry.

 Regional policy favouring new plants in North and West:

o Inability to expand production facilities in West Midlands and Southeast.
o Significant government control over corporate decisions.

Motor industry timeline – (late 1960s to the mid-1980s):

  Imports rose and exports fell.  A balance of payments surplus became a deficit.

Motor industry timeline – (last decade):

 Only 12% of cars sold in the UK in 2018 were produced in the UK.

Key elements of car making:

Key elements of car making – Economies of scale:

 “When you get to making cars in quantity, you can make them cheaper, and when you make
them cheaper you can get people with enough money to buy them. The market will take
care of itself.” ~ Henry Ford

 Longer production runs:

o Lower costs per unit.
o Allow for specialised machinery.
o Require less skilled labour.

 The Ford approach and deskilling:

o By early 1920s:
 85% of jobs could be learned in 2 weeks.
 43% of jobs could be learned in 1 day.
o Dreadful work:
 Ford had to hire 125 workers per 100 employees per year (high turnover).
Key elements of car making – Assembly, very little manufacturing

Key elements of car making – Linkages with suppliers:

 Many components can be produced more efficiently by others

* The making of British Leyland

* British Leyland merger:

 IRC promoted merger to create a national champion.

 Combination of BMC and Leyland:
o Austin, Morris, Wolseley, MG, Riley, Daimler, Jaguar, Rover, Standard, Triumph and
seven truck makers.
o 40% of UK car sales.
o 35% of UK truck sales.

British Leyland was unproductive, because of the:

 48 factories.
 Wide range of models.
 Culture clash: mass production of BMC vs more specialist production of Leyland.
 Poor industrial relations and management.

Failure of British Leyland:

 British Leyland lost market share steadily.

 Ford established itself as the clear market leader, with a limited range of non-overlapping
cars.

 Exports could not save British Leyland.

 Overall output collapsed.
British Leyland financial results:

 Disastrous - had to be rescued by the government.

 Company debts guaranteed by government and £900 mm of funds injected into company.

Reasons for failure of British Leyland:

 Little rationalisation of plants, models or components:

o In 1968 British Leyland had 48 plants.
o Ford had four.
 Poor industrial relations.
 Poor management.
 Too many mergers.  Nissan, Toyota, Honda and BMW prove you can build cars
competitively in the UK.  Virtually any other strategy likely to have been more successful
than that followed by British Leyland.

Summary – Reasons for decline:

 Poor industrial relations & management.

 Damaging government policies: Industrial policy (IRC), Regional policy, “Stop-go” demand
policies.
 Late entry into EEC.
Conclusion:

 UK motor industry critical to output, employment and balance of payments.

 Post WWII, UK second largest manufacturer in the world (and leader in Europe).
 Domestic market characterised by relatively wide variety of models.
 Rapid decline in 1960s-1970s.
 Loss of market share at home and abroad to more efficient foreign manufacturers.
 Relatively poor at high volume production.
 Partial revival since 1980s led by non-British firms.
 Currently 10th largest manufacturer.

Class Notes:
Start & WWII Continuity after WWII Decline in Rehabilitation
1970s since 1980s
Owners and Largest in Europe. Fewer factories.
Management Variety & flexibility. Reestablishment
Less amount but of management
high profit. control.
More staff, less New model
capital. program.
Labour in Deterioration in
Shop Floor labour relations.
Piece work system
persistence.
Strikes ↑.
Government Extension of Export ↑ to rescue
collective BOP.
bargaining power Control over raw
during material.
WWI & II to Transfer them to high
guarantee unemployment area.
the need of war.
Financial X X X
Market
Consumers + Middle rather than Globalization.
Exports mass.
Advantage of
Empire Market.
Great Depression.
Rise of US US: What is X X Japan: What is
and Japan Fordism? Toyotaism
The Fair; X
Continent similar to UK till
1939.
Germany:
Volkswagen by
Hitler, an
accidental rise.