The Car Industry Brought Its Decline on Itself - Essay Example

The Car Industry Brought Its Decline on Itself’ INTRODUCTION British car industry had immense potential to grow and become one of the best car manufacturing industries in the world. However, several factors caused the British Car Industry to perform inefficiently and ineffectively and most of the industry was eventually taken over by foreign ownership. Since 1960, many factors have affected the British car manufacturing such as government policies, high inflation during certain periods, fluctuations in the value of currency, and so on. However, the most dominant factors that led the British car industry to a decline had been the mistakes made by the government and the poor management practices in the British owned car firms. The government tried to play its role in curing the demise of the car industry in Britain. However, it ended up making decisions and policies that adversely affected the state of the British car industry. They include the steel rationing scheme, improper investments and development to support mergers, and unsuccessful regionalization policies. On the other hand, the management practices prevalent in the industry did not help its condition either. There was unsystematic authoritarian leadership, poor integration after mergers, and other improper strategies that also played their role in bringing down the growing car manufacturing industry of Britain. (Church, 1994) This paper will shed light over the ineffective government policies and the poor management that, together, led to the demise of the British car industry. It also discusses some specific cases and examples from the history of Britain’s auto industry and points out where the mistakes were made and how management could have avoided them. MEDIOCRITY OF GOVERNMENT Some may argue that the government’s economic policies could have had an adverse affect on the development of the industry. The factors that may have contributed towards the meltdown of the auto industry in UK may include the steel rationing scheme, unsuccessful regionalisation policies by the government and the failure to maintain the development of the newly funded mergers. After the success of the auto industry in the UK, in 1945 the multinationals expanded their factories in order to increase the productivity. The government supported this effort made by the multinationals as it would increase employment in the surrounding areas. But the scarcity of resources such as steel kept the government to keep the supply under their control also known as the steel rationing scheme; this prevented the firms to produce the maximum output. In the following year, exports decreased drastically because of low productivity, but this time it was because of the frequent shortages of steel and castings. (Donnelly et. al., n.d.) The changes in energy from coal to oil caused employment to increase among the coal fields. The economies of the northern UK flourished in the initial years of the regional policy, but in 1974 the productivity decreased and employment became an issue once again. (Gudgin, 1995) In attempts to increase employment and generating profits, the government forced the motor companies to develop their industries in areas that were deprived of employment. These areas were far from the mainland and the transportation costs of components were high. The government declined the offer made by Ford and Vauxhall to expand in the midlands and the South east as it wanted to eliminate unemployment in the older industrial areas of Britain. This resulted in Ford and Vauxhall to shift to Merseyside. Standard, on the other hand increased its productivity in Hales Engineering works at Speke near Liverpool and Rootes was made to start a factory in Linwood. Unfortunately, Speke was never able to achieve output to its full capacity; the maximum output it produced was only one third of its capacity and resulted in a catastrophe as it eventually led to its closure. Similarly, even though labour was readily available, the suppliers of the components were in the midland which was far from Linwood. Hence, when the newly designed car made as a competition for the BMC mini was released, it was too late to fulfil its purpose. The new Hillman Imp launched in 1962 could not compete with the Mini because the demand had now shifted from small cars to medium sized cars. Thus, the high costs and low benefits eventually turned out to be a failure for Rootes and led to its closure. The “Stop and Go” policy by the government between 1950’s to 1960’s to maintain the balance of payments by altering the aggregate demand in the economy created uncertainty among consumer’s and the manufacturer’s. Additionally, during 1952 to 1970, the frequent fluctuation in hire purchases made the consumer’s doubtful about purchasing the automobiles; as a result the manufacturers were having difficulties in planning for their future investments and manufacturing. (Donnelly, Tully, & Morris) The initial merger of Austin, Morris, Standard, and Triumph to form British Leyland as a national champion eventually resulted in being nationalized. The government intended to invest a large amount in the British Leyland to revive the sinking ship, but the losses kept on growing and taxpayer’s money was being used in the process. The reason of the merger being unsuccessful was that even though the firms were combined, the four different units continued to work on their own. As a result, it could not match up with its competitor Ford in terms of market lead, the merger proved to be ineffective. (Northedge, 2009) The government subsidised the British Leyland as a large workforce of their economy depended on it, the failure to manage efficiently caused it to become bankrupt and even though it continued for several years, the grant by the government could not help revive the company. Despite the generous treatment of the multinational companies by the UK government by funding them and granting them subsidies, the inefficient management within the firm contributed to the closure of the companies. MANAGEMENT PROBLEMS Management problems were observed from as early as 1952, when Austin and Morris combined together to form the British Motor Corporation (BMC). BMC was, at that time, the fourth largest car manufacturing company in the world. Mergers are aimed to enhance the resource pool, improve the production process, and combine the different skill sets of companies to provide them with a competitive advantage over others. However, the poor execution and follow through of the Austin and Morris merger proved fatal for the two companies. After the merger, Austin and Morris went on to continue running as separate entities, producing their own line of cars and not maximizing on the productive capacity. This lack of integration resulted in poor coordination and, eventually, failure. (Church, 1994) BMC then went on to merge with jaguar in 1966 to form the British Motoring Holdings, or BMH (British Car Council, n.d.). In 1968, BMH combined with Leyland, a commercial vehicle manufacturing company, through a government loan of £25 million to form British Leyland (BL). Then fifth largest car company in the world, it had 55 factories in operation. However, this merger too resulted in a failure due to poor management practices and the government had to take over it. The company could not make better profits than they were making before the merger and the dividends paid out to the share holders were too high. Moreover, because of the low volumes of profits, the management was reluctant in making investments into the company and counted on customer loyalty to support its sales. This resulted in very minor changes and improvements made in their newer models, which consequently resulted in the customers switching to cars from other companies and BL with even lower sales and lower profits. The BMC Case As discussed, BMC was the result of a merger between Morris and Austin in 1952. The problem, however, was that both the companies had their own separate systems of operation and, perhaps, it made more sense for them to continue operating under their own domains and making minor changes into the way they branded their cars. This strategy went fine in the beginning, but with the progress of 1950s, BMC’s cars started to lose their reputation and the services of the Italian design house Pininfarina were hired to help put back some life into the upcoming models. Even with the alterations in aim to uplift the declining image of the brand, BMC’s cars were becoming more and more uncompetitive. (The BMC Story, n.d) Until 1968, when it merged with Leyland to form British Leyland, BMC tried to stay in the market and compete through its different offerings such as the famous Mini, 1100, 1800, and so on, but even though the company did hold a big chunk of the market, it had no enticing offerings for the 1970s, and was forced to give up. Reasons for Decline In the 1950s, other companies started to enter the UK car market and started introducing new and fresh cars to the customers. Things started to change for BMC. The company could no longer rely on customer loyalty alone to get customers to buy their cars as the customers could see more choices to choose from. BMC’s management should have noticed the changing trends and should have introduced a more diverse range of offerings to satisfy the changing needs of the customers. (Church, 1996) The trend for niche marketing was evolving. This was evident through the success of the Mini which, even though, was not the result of a well formulated strategy, experienced great success. However, sufficient investments into new models were not made, and that paved way for more dynamic and responsive companies, such as Ford, to enter and capture the market. BMC’s management was just not dynamic enough to adapt to the changing environment. They followed an autocratic style of leadership in the organization and had a great deal of internal politics to take care of, which was the result of a badly executed merger between Austin and Morris. Therefore, BMC ended up spending more time and effort in sorting its own problems out instead of adapting to the changing customer needs. BMC implemented some wrong strategies as well such as the policy of having the customer finish the final testing of the car. Moreover, the company also faced reliability issues. The mediocrity of the management resulted in lack of quality assurance and hence, poor quality vehicles. (The BMC Story, n.d) What BMC should have done but did not do Firstly, the chaos in the model offerings that BMC created should have been taken care of by the management. At the time of the launch of the 1100, Minor should have been ceased. Similarly, when 1800 was introduced, the Farina Oxford range should have been dropped. The same should have been done for other models as well to clear out the clutter and to give a cleaner picture to the market. Also, the mindset of the management of reinvesting only when the profits were high proved very harmful. Instead of trying to minimize costs at the time of hardship, BMC should have paid special attention to reinvestment decisions to improve their offerings and compete with the more dynamic and responsive competitors in the market. Moreover, management should have realized the importance of attaining proper market insight and should have worked closely with the distribution partners in order to more accurately assess the market conditions and scenario. Furthermore, the internal politics of BMC and the lack of integration of the merger should have been focused on from the very start. The whole idea of a merger is to maximize on each other’s skills, a concept that was not incorporated into the Austin and Morris merger. BMC couldn’t make profits out of mini The Mini was one of the most successful cars for BMC before its demise. Even though the car was not a part of a coherent strategy, it was an example of what the changing wants of the customer required. The car represented engineering excellence as far as the design is concerned. However, due to the ineffectiveness of management, BMC could not extract out the profits they should have from Mini. Firstly, the car was underpriced. The reason for this was that the management did not have sufficient information on its own costs for each model. Also, because of the lack of detailed knowledge of the market environment, BMC could not set the optimal price for the model to maximize its revenues. (Austin/Morris Mini – the 60s, n.d.) Moreover, the car faced problems of poor standardization. For instance, there were 60 different kinds of speedometer installed on the different models. All these factors showed the poor management of BMC and resulted in Mini not contributing as much to the profits of the company as it should have, even when faced with minimal competition in the category from rivals such as Ford. Coventry Case Most of the car production in the UK came from the city of Coventry and due to this other industries such as machine tools and car components, electrical engineering and light engineering industries flourished after World War 1. This attracted the multinationals such as Standard, Rootes, Ford, Vauxhall, Austin, Morris and Jaguar to set up their factories in Coventry’s industrial base during the War period. The industries faced very low investment levels in the 1950’s, which resulted in little or no growth, profitability and productivity. Even though there were waves of heavy investments such as standard spending over five million pounds for a new assembly line in Canley in order to raise its production capacity, but it was still lower than that of Ford. Investment plans were made at the time when British Leyland was taken over, but failed to be materialized due to large losses as a consequence of low investments for a long time, the industries failed to achieve economies of scale and profits. (Donnelly et. al., n.d.) Low productivity and profitability also resulted in trouble for product development. Additionally, all the spare parts were made in different places and were brought back to Coventry, and it was cheaper for the producers to lock the spare parts instead of welding them. As a result, when the car’s reached the customer’s the producer’s were filled with complaints such as water leakages, etc. This prevented Standard and Rootes to demand the price for their car and had to accept the prices that were given to them instead. (Donnelly et. al., n.d.) CONCLUSION The British car manufacturing industry had exhibited engineering excellence in the pre-war era. However, the post war era did not prove to be very beneficial for the industry. There were two main reasons for the demise of the industry: the incorrect government policies and the poor management practices. Because of these issues, the industry gradually went from second largest, in the 1950s, to almost nonexistent. Today, even though Britain produces a big portion of the world’s cars, the difference is that hardly any is British owned. British car industry is dominated by foreign car manufacturers such as Ford and BMW. (Feast, 1998) Perhaps, things would have turned out to be different if corrective measures had been taken. Nonetheless, the historical demise of the British car industry had many lessons to teach to the world’s car manufacturing companies and Britain should learn from their mistakes as well and use them to their advantage in reviving the name of British engineering. BIBLIOGRAPHY Church, R.(1996). Deconstructing Nuffield: The Evolution of Managerial Culture in the British Motor Industry. The Economic History Review, New Series, Vol. 49, No. 3 (Aug., 1996), pp. 561-583. Black Well Publishing Donnelly T., Tully, J. & Morris, D.(n.d.) The Decline of the Coventry Car Industry 1945-68. Coventry University. Dunnett, P.(1980). Decline of the British Motor Industry: The Effects of Government Policy, 1945- 1979. London. British Library Cataloguing Church, R.(1995).The Rise and Decline of the British Motor Industry. Cambridge. Cambridge University Press Feast, R.(1998). Sun Sets on British Car Makers. The New York Times. Available from http://www.nytimes.com/1998/04/03/automobiles/sun-sets-on-british-car-makers.html?pagewanted=1. [Accessed on 24 March 2010] Whisler, T.(1996). The British Motor Industry and the Government, 1944-52. Business and Economic History, Volume twenty-five, no. 1, Fall 1996. Gudgin, G.(1995). Regional problems and policy in the U.K. (United Kingdom economic regional disparities). Oxford Review of Economic Policy. Available at http://www.accessmylibrary.com/article-1G1-17372308/regional-problems-and-policy.html. [Accessed on 9th March 2010] Northedge, R.(2009). When the Sun Set on the British Auto Industry. Moneywatch.com. Available from http://moneywatch.bnet.com/economic-news/article/the-decline-of-the-uk-auto-industry/301224/ [Accessed on 18 March 2010] The BMC Story (n.d.). British Motor Corporation. The Auto Channel. Available at http://www.theautochannel.com/vehicles/coll/marque/bmcnew2.html. [Accessed on 15th March 2010] Austin/Morris Mini – the 60s(n.d.) Retrowow.co.uk. Available from http://www.retrowow.co.uk/transport/60s/motoring/austin_morris_mini.html. [Accessed on 28th March 2010] British Leyland Motor Coropration, Ltd.(n.d.). history.com. Available from http://www.history.com/topics/british-leyland-motor-corporation-ltd [Accessed on 28th March 2010] Read More