Detroit Big 3 Carmakers Closer to Bailout
Divided Senate Should Consider UK Experience with British Leyland
Dec 11, 2008
Gregg Hitt in the December 11th 2008 Wall Street Journal article House Passes Rescue Plan for Big 3 noted “Pulled down by a steep drop in sales, General Motors Corp., Chrysler LLC and Ford Motor Co. are seeking $34 billion in loans or lines of credit to weather the recession. Ford says it needs taxpayer-backed financing only for the long-term. GM and Chrysler say they need the cash before the end of the year to avoid collapse.”
Bailout or Bust
If approved by the Senate, which seems probable but not certain, then an immediate $14 billion is released as an emergency loan. The wrangling to date and the further wrangling that will happen will not change the essence of the issue, which is that the US government is trying to save the American car industry and in particular potentially millions of jobs.
Politically it is almost impossible for the leaders of the nation to do otherwise. Republican Senator Richard Shelby states “I'm going to oppose the package because I think this is just the down payment on billions and billions to come…These are failed or failing companies.” Despite protests such as this it is still likely to be approved but if British history has any relevance then he is probably right to make a stand.
British Leyland
The UK have history here that is relevant and more importantly the longer term result may foreshadow events for the US car industry. The UK had a thriving domestic car manufacturing industry that suffered a long descent into mediocrity and financial trouble. In its heyday it had a number of marquee brands such as Jaguar and Land Rover as well as many popular cars such as the Mini, Austin and Morris. However by 1975 the domestic car industry was in decline and was partly nationalised in 1975 as British Leyland Ltd.
British Leyland Goes from Bad to Worse
Despite owning between 30% and 40% of the domestic car market the situation deteriorated with a number of bosses such as Sir Michael Edwardes and a number of restructurings all failing to produce the desired turnaround and profitability. In 1986 what was left of British Leyland was renamed Rover Group and later MG Rover Group. Continued attempts to revive the company failed and various brands were sold off such as Jaguar in 1989. But eventually, in 2005, it went bankrupt and was taken over by China’s Nanjing Automobile.
Past as Prologue
In 1975 the UK government tried to rescue the UK car manufacturing industry and save many jobs. Ultimately, after years of decline, numerous failed attempts to revive the company and various profitable brands sold off -- the company went bankrupt in 2005. The end result was enormous industrial and financial problems over many years and finally the demise of the British owned car industry. At worst this can be characterised as an expensive exercise in futility, at best delaying the inevitable and smoothing the transition. US policy makers should try to learn from the UK experience to avoid the same problems.
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