ROOTES MOTORS LTD.

HC Deb 17 January 1967 vol 739 cc34-47

The Minister of Technology (Mr. Anthony Wedgwood Benn)

In December, 1966, the Government were asked by Rootes Motors Ltd. what their attitude would be to an application by the Chrysler Corporation for Treasury consent under the Exchange Control Act, 1947, to enable them to inject more capital into Rootes and, in the process, to obtain control of Rootes.

This request was considered by the Government in the light of the exchange of letters between the right hon. Gentleman the Member for Barnet (Mr. Maudling) and Chrysler in 1964, when Chrysler first made a substantial investment in Rootes.

On that occasion Chrysler gave an assurance that it would not act to take control "against the wishes of the British Government of the day"; and the then Chancellor of the Exchequer, the right hon. Member for Barnet, in return gave an assurance that in reaching a decision about the transfer of control to Chrysler the Government would "take into account the interests of a prosperous and viable development of the motor car industry in general and of the Rootes business in particular".

The Government have, therefore, in the context of the recent Rootes approach, consulted the leaders of the principal British-owned motor vehicle firms to see whether a viable solution designed to enable Rootes to continue as a British-controlled company could be devised. No such scheme proved practicable.

Before reaching a decision the Government sought from Chrysler a number of undertakings about its future policy for the Rootes Group. These included maintenance of a majority of British directors on the Board of Rootes; an exchange of directors with Chrysler International S.A. and Simca S.A.: confirmation of Rootes' expansion and development plans, particularly at Linwood in Scotland—where the major development involving substantial increase in employment will take place; the expansion of exports to all practicable markets; and the offer of a participation by the Industrial Reorganisation Corporation in Rootes—carrying with it the right to nominate one director to the Board—in order to maintain a stronger British interest than otherwise seemed possible. Chrysler has given these important undertakings.

The Board of Trade have considered whether this transaction should be referred to the Monopolies Commission for investigation and report. However, in the light of the informatio navailable to them, they have decided that the public interest does not require that such a reference should be made.

In all the circumstances, the Government have decided not to object to the Chrysler proposal. The necessary Treasury consents have been given.

At the request of my right hon. Friend the First Secretary of State, made under Section 2(i,b) of the Industrial Reorganisation Corporation Act, 1966, the Industrial Reorganisation Corporation has agreed to a participation in Rootes in accordance with Chrysler's undertaking.

I am circulating in the OFFICIAL REPORT my exchange of letters with Chrysler containing the important undertakings required by the Government and given by Chrysler. Copies are now available in the Vote Office.

I should like to announce a more general decision taken, arising from the full and detailed examination made into this matter. The Government are convinced that the British-controlled firms would gain greatly if they could cooperate much more fully in overseas marketing arrangements. The Industrial Reorganisation Corporation has, therefore, also agreed to discuss with the British-controlled motor manufacturing firms the possibility of close co-ordination and co-operation between them in their efforts overseas.

Mr. David Price

I am sure that the whole House will be grateful to the right hon. Gentleman for his full statement. I should like to ask a few very preliminary questions.

Is the right hon. Gentleman aware that the immediate urgency for Rootes to make these new arrangements with Chryslers is the direct consequence of the sustained credit squeeze and the lack of liquidity in British industry?

I would also ask, as to the participation by the I.R.C. in the equity of Rootes, when Chryslers has agreed in writing to the right hon. Gentleman to maintain a majority of British directors on the board of Rootes, why it is necessary to have I.R.C. participation in order to maintain British interests on the Rootes Board, especially when the I.R.C. will have the right to withdraw after 1st January, 1972?

Would the right hon. Gentleman also tell the House whether this participation by the I.R.C. was sought by Rootes, by Chrysler, or by the I.R.C. itself?

Further, can the right hon. Member tell us what is to be the position of B.M.C. and the Leyland group vis-à-vis the Government now that the Government themselves, through the I.R.C., have become one of their direct competitors?

Finally, so that justice may be done to members of the present Government, may I ask two questions which the Chancellor of the Exchequer asked my right hon. Friend the Member for Barnet (Mr. Maudling) on 8th June, 1964? First, is the right hon. Gentleman satisfied that this change of effective control of Rootes is in the interests of the British motor car industry as distinct from that of the Americans? Secondly, what is the Government's policy on the question of the control of the motor car industry by overseas capital? We have now well passed the 50 per cent. mark.

Mr. Benn

The hon. Gentleman has raised many questions. Perhaps I might take the last one first. As he knows better than most people, and his right hon. Friend the Member for Barnet (Mr. Maudling) knows it even better, the decision taken in 1964 was effectively the decision that conditioned what action could be taken by us now.

The position was that the Chrysler penetration was even fuller than became evident in the exchanges in July, 1964, in that 62 per cent. of the ordinary equity was owned by Chrysler when the crisis arose, and 45 per cent. of the voting shares. Therefore, this does not reflect any change of view by us on the general question. [HON. MEMBERS: "Oh."] Not at all. The position is that two and a half years after the right hon. Gentleman described his earlier acceptance as a very good thing for the motor industry, the firm to which he was referring became insolvent; and this has some bearing on the position which confronted us now. [HON. MEMBERS: "Come to the point."] I will come to the point.

Over the last five-year period Rootes' return on net capital employed was 0.3 per cent. on average. Rootes' lost £3 million in the year ended 31st July last year, but before the July measures took effect, although there is no doubt that the measures may have affected the speed with which the crisis developed. The basic fact confronting us was that Rootes was insolvent and that the British employment and expansion plans in that company were threatened.

The rôle of I.R.C., as I made clear, was at the insistence of my right hon. Friend the First Secretary. We believe it right that there should be a director on the Board representing British interests. It astonishes me that the hon. Gentleman should not object to American control or foreign control of a British motor company, but should object to the British public being represented through I.R.C.

As to the question of B.M.C.-Leyland, they are not, of course, competing in this sense because they are interested in their export consortium arrangements which I.R.C. is hoping to arrange. I.R.C. can remain in the Rootes group as long as it wishes to do so.

Mr. Edelman

While noting the consistency of the support given by the Opposition to a policy of surrender to United States financial and industrial interests, may I ask my right hon. Friend also to note that the motor workers at Coventry, and many hon. Members on this side of the House and millions of people in the country are deeply disturbed by the take-over, for that is what it is despite my right hon. Friend's ingenuity of presentation and, indeed, the whitewash which surrounds the description of the operation which has taken place.

Will my right hon. Friend also note that what has now happened fully bears out what the Prime Minister forecast when he was in opposition, namely, that before long Rootes would go the way of Simca, and in these circumstances will he now say what the circumstances are which have caused the Government Front Bench to make such a complete turnabout by which a key British strategic industry is now handed over, in effect, to United States' control?

Mr. Benn

My hon. Friend brought a deputation to see me on this subject on Friday, and there were eight points to which it drew attention, with his support. Every one of them was covered by the conditions that the Government insisted upon in relation to Chrysler: condition No. 1, job security and policy to be decided with reference to United Kingdom interests; condition No. 2, majority of United Kingdom directors; condition No. 3, the expansion plans confirmed, including Linwood; and also exports and guarantee of access by Rootes to the Chrysler International Organisation management, Government investment, and an I.R.C. director.

The take-over of Rootes by the British Government—which, of course, was considered, but would have involved massive sums of public money going into an insolvent private enterprise company without any guarantee that in this way it could remain viable—was not a practicable proposition. The alternative that we considered—I referred to it in my statement—was the possibility that we might have gone into partnership with the British-controlled firms to sustain Rootes, but in view of the technological, managerial and financial entanglement arising out of the 1964 arrangement this did not prove to be practicable, either.

Miss Harvie Anderson

Is the right hon. Gentleman aware that there will be widespread relief in my constituency that the injection of this additional American capital will go some way to offset the disastrous consequences of the Government's policy, which has resulted at Linwood in a two-day working week for many months?

Mr. Benn

If the hon. Lady proposes to make a point about the Government's rôle in the motor industry she might take account of the many millions of pounds of Government money put into the industry in development areas to provide employment—including Linwood, where employment is a major consideration.

It is interesting to note the reaction of the Opposition. We are now engaged in an inquest into the total failure of private enterprise. That is what we are discussing at the moment, in considering the future of the Rootes group. The Government have been able to make arrangements which guarantee that British interests will be safeguarded in these circumstances and to that extent the hon. Lady's constituents and others will find some security in their employment through these arrangements.

Mr. Rankin

When we postulated the possibility of private enterprise failing, we never at the same time said that we would bring in Americans to rescue our private business. Did we not put forward another solution—that the Government should step in at that point and take over? Why are we not doing so now?

Mr. Benn

I have explained these considerations in my statement, but I will refer to them again. The issue is simple. We did not believe that Rootes by itself was a viable organisation with or without Government money, owned or not owned by a British company. The alternative we pursued to see whether it was practicable would have involved substantial Government investment in Rootes and then a merger which would not, however, have resulted in Government control of the consequential company. This solution was not practical because of the degree of technological, engineering, managerial and financial entanglements arising out of the previous arrangements.

Sir H. Legge-Bourke

Can the right hon. Gentleman say whether the inclusion of the I.R.C. in the new set-up means that it is coming in in any way as a financial contributor using the powers that Parliament has recently given?

Mr. Benn

Certainly, the Corporation is using the powers that this House gave in the 1966 Act. It is using them at the request of my right hon. Friend the First Secretary of State under Section 2(1,b) to see that British interests are represented on the Board of what will now be an American-controlled company. Such a situation was contemplated when the Act was introduced. I would have thought that such a course would have commended itself to the hon. Gentleman.

Mr. Orme

My right hon. Friend has said that private enterprise has failed in this matter. He says, in essence, that the Government cannot take over the firm because it is not viable. But why, therefore, are the Americans putting capital into it? I draw my right hon. Friend's attention to the fact that, if we are to have a viable motor industry in this country, we shall have to do what the French and the Germans have done—take a large measure of public control over it.

Mr. Benn

The Chrysler Corporation is putting in money to protect the investment it made in 1964. From our point of view, we were concerned to maintain employment in this firm and the motor industry. Our doubts about this did not arise from anti-American feeling, but from the anxiety that Britain, looking ahead over a period of years, might not be able to sustain three large American corporations and a British corporation when the United States, which is three times our size and has a much larger output, can sustain only three corporations.

It was our look at the future of the industry which led us to have anxiety about the arrangements which, unfortunately, we were unable to avoid, but we believe that we have reached the best possible conditions in safeguarding against the risks which are in my mind as well as the mind of my hon. Friend.

Mr. Edelman

On a point of order, Mr. Speaker. My right hon. Friend has referred to an interview which I had last Friday with him, when I met him with a number of shop stewards representing the workers of the Rootes group. In the course of our discussion, my right hon. Friend suggested that the meeting should be private. May I ask whether it is in the interests of orderly debate that my right hon. Friend should give an ex parte account of proceedings in a private interview of which I have had no notice and no opportunity to reply? Is that in accord with the traditions of Parliament?

Mr. Speaker

All I can do is rule on the question of whether or not it is in order. Nothing that is not in order has happened this afternoon. The hon. Gentleman must take up the personal matter with the Minister.

Mr. Lubbock

If the Rootes group is not viable and is insolvent, as the Minister has said, is it not in the interests of the workers in the company that American capital should be put in so as to safeguard their jobs? Has it not the additional advantage from the British point of view that the injection of £20 million of American capital will lead to the introduction of American "know-how" and advanced technology to a greater extent in the company than hitherto?

Mr. Benn

There is some point in that argument, but it does not follow that, whenever a British firm runs into difficulty, one should expect it to be rescued by overseas investment which leads to a take-over. As my right hon. Friend the Prime Minister said in 1964, it is one thing for foreign firms to come in bringing "know-how" and technology, and establishing firms here, but another thing that, whenever British firms run into difficulties, they should be taken over by overseas companies.

We greatly welcome overseas investment in general, but we are bound to look at it also in the light of the development of certain key industries in this country. That is why we hoped to find an alternative in this case.

My hon. Friend the Member for Coventry, North (Mr. Edelman) has referred to the meeting I had with him and shop stewards on Friday. I promised them that I would give consideration to the points put to me and he and I rehearsed them. I was anxious in my statement and answers to show that I had met every point, but if, in doing so, he feels that I have breached the confidence of himself and the deputation, then I apologise.

Mr. Maudling

The right hon. Gentleman has said that it is necessary to have a representative of the I.R.C. on the Board to see that British interests are protected. Is it his argument that only a State organisation can have regard to British interests?

Mr. Benn

Certainly not, but the right hon. Gentleman knows that, when one is considering the future of an industry and the possibility of rationalisation and a take-over by a big international company, it might follow, as a result of market changes, that decisions may be taken which might adversely affect the British element of the corporation. We have seen a vivid example in the case of the French computer industry. We felt that the British public should be represented through the I.R.C. and I think that the right hon. Gentleman will agree that only the I.R.C. can perform this rôle.

Mr. Chapman

Does not this situation reinforce the case for a National Economic Development Council for the motor industry so that all these factors can be considered in the context of the industry as a whole? How long is the announcement on this to be delayed? When the Ford enterprise here finally came under American control assurances were given to the effect that the policy of British Ford would never be subordinated to American commercial interests. Is this agreement as good as that, or better?

Mr. Benn

It is my right hon. Friend the First Secretary of State who will be making a statement about an E.D.C. for the industry, because he is responsible for that. The Government are keen to get it. The only delay is arising out of the existence of the National Advisory Council in the motor industry and through consideration of the relations between the two bodies and the way to bring both sides together. This is a technical point. I doubt whether discussion of sensitive points such as mergers and developments of this kind could easily be discussed in the context of a "Little Neddy".

When my hon. Friend reads the exchange of letters in the OFFICIAL REPORT he will see that the assurances by the Chrysler Corporation are based entirely on best endeavours and lay down some criteria on which they can be judged. The participation of the I.R.C. provides better security in this case than we had under the previous arrangements made with the Ford Motor Company.

Mr. Kershaw

How much money will I.R.C. be providing?

Mr. Benn

I.R.C. is issuing its own Press statement today. Roughly, it amounts to about £3 million.

Mr. Michael Foot

Will my right hon. Friend take into account that whereas the only object of hon. Members opposite on this procedure seems to be that the British public shall retain some representation, what we on this side of the House are concerned to do is to secure that the British public shall have effective representation? When my right hon. Friends says that he could not get the cash to propose an alternative method, will he tell the House what is the good of the British Government and the British people thinking that they can have troops all over the world if we cannot even own our own industry?

Mr. Benn

My hon. Friend misses the point of the alternative which we sought. The problem here was that if we had nationalised Rootes we should have been left, even then, with a company which, in technological terms, was not of a scale which could survive at a critical moment. [HON. MEMBERS: "Why?"] If my hon. Friends want to know why, I will give the reason. The reason is that Rootes' expansion plans which are currently being developed depend entirely, as a result of the 1964 arrangement, on the technological interests of Chrysler; their marketing aspects have been integrated, their managerial and financial arrangements have been integrated.

The act of nationalisation would have severed the link with the company upon which the future of Rootes currently depends. This was the consideration, with no regard to international matters. These were the factors which we had to take into account. If we had been able to set up the alternative, involving a British-controlled motor industry, then, of course, we still would not have had control of it, because the Rootes element would have been a minority element.

Sir John Rodgers

Is not the statement about I.R.C. representation and about there being a majority of British people on the board all eyewash? Does not the Minister agree that the effective decisions will come from the majority shareholders against the background of Chrysler's world interests?

Mr. Benn

These were the considerations which led us to impose some very stiff conditions which the hon. Member will see when he reads the exchange of letters. It is true that where there is a transfer of control one is bound to get a majority influence exercised by the majority shareholder. But the hon. Member might mention that even before this crisis developed, 62 per cent. of the equity of Rootes was owned by Chrysler—[HON. MEMBERS: "Oh."] And 45 per cent. of the voting shares. I was going to give both figures. For practical purposes, had we tried an alternative arrangement we should not only have had to provide the money to inject into the firm for the short-term needs to buy out Rootes and Chrysler, but we should then have had to take over a unit which would not have been viable, for reasons which I have given.

Mr. Dalyell

Is my right hon. Friend aware that many Scots will be curious to know the precise nature of the undertakings given by Chrysler on the future of Linwood?

Mr. Benn

Scots who have been to the Vote Office will already have had their anxieties allayed, because there is a specific reference in Undertaking No. 3: Chrysler confirms the plans of expansion covering development work at various factories and especially at Linwood in Scotland, where the major development will take place and where it is planned to increase employment by several thousands; these plans are essential if Rootes is to remain competitive, achieve its proper share of exports and return to reasonable profitability". I can tell my hon. Friend that the employment prospects at Linwood were uppermost in our minds when we decided to reach the arrangements which I have just announced to the House, and I think that on that ground alone this arrangement should recommend itself to the Scots.

Several Hon. Members

rose—

Mr. Speaker

Order. I must protect the business of the House.

Following are the letters:

Letter of 16th January, 1967, from the Right Hon. Anthony Wedgwood Benn, M.P., Minister of Technology, to Mr. I. J. Minett, Group Vice President, Chrysler Corporation. I refer to the discussions which have taken place between us about your proposals for an injection of further funds into Rootes, which would have the effect of control of Rootes passing to Chrysler Corporation (Chrysler). Under these proposals additional funds of up to about £20 million would be made available to Rootes, as to approximately £10 million by a rights issue of Preferred Ordinary Shares to Rootes shareholders which would be underwritten by Chrysler by an issue of Unsecured Loan Stock. On taking up their entitlement under the rights issue Chrysler would obtain voting control of Rootes. I am now writing to say that provided Chrysler gives Her Majesty's Government the Undertakings set out below, the Government would not object to these proposals and that, accordingly, the necessary consents of the Treasury under the Exchange Control Act 1947 will be forthcoming. These consents will, of course, be subject to compliance with the normal detailed requirements of the Government's exchange control policy which have been explained to your representatives (S. G. Warburg & Co. Ltd.). The Undertakings referred to above are as follows:

1. (i) Chrysler will not initiate any action to impair either the home or overseas operations or the management and direction of Rootes as a British company in its relations with the Government, labour, its British shareholders, and the public.
2. (ii) Chrysler undertakes to maintain a majority of British Directors on the Board of Rootes.
3. (iii) Chrysler confirms the plans of expansion covering development work at various factories, and especially at Linwood in Scotland, where the major development will take place and where it is planned to increase employment by several thousands; these plans are essential if Rootes is to remain competitive, achieve its proper share of exports and return to reasonable profitability.
4. (iv) Chrysler plans to achieve a progressive increase in the export of Rootes pro- 46 ducts without restriction to all practicable markets and to continue to make available its full international organisation for this purpose. They note that, in the view of Her Majesty's Government, the test of the fulfilment of this undertaking would be that the export percentage of the products of the Rootes Group should be at least as high as the average for the British Motor Vehicle Industry as a whole.
5. (v) Chrysler will nominate a Rootes Director (British) to each of the Boards of Simca S.A. and Chrysler International S.A., and it is understood that a Simca Director (French) will be nominated to the Board of Rootes.
6. (vi) Chrysler confirms its intention to leave at least 15 per cent. of the entire equity capital (Ordinary, "A" Ordinary and Preferred Ordinary) in the hands of shareholders other than Chrysler, provided that in calculating this 15 per cent. Chrysler may take into account any shares held by the Industrial Reorganisation Corporation (I.R.C.) or put by I.R.C. to Chrysler (in accordance with Undertaking (vii) below).
7. (vii) Provided that Chrysler acquires Preferred Ordinary Shares in excess of its rights entitlement of £6,263,686 nominal, it will make available to I.R.C. at par up to £1,512,228 nominal of such excess, i.e., up to 15 per cent. of the total Preferred Ordinary Shares, of £10,081,519, on condition that I.R.C. participate to the same percentage in Chrysler's undertaking to subscribe up to £10,000,000 Unsecured Loan Stock. I.R.C. will have the right on 1st January, 1972, to put these securities to Chrysler at par plus any accrued but unpaid dividend or interest.
8. (viii) I.R.C. will have the right to nominate one Director on Rootes Board as long as it owns all the securities mentioned in Undertaking (vii) above.

I should be grateful if you would formally confirm that Chrysler gives these Undertakings which, it is understood, between us, may he made public.

Reply dated 16th January, 1967, from Mr. I. J. Minet to the Rt. Hon. Anthony Wedgwood Benn, M.P. We refer to your letter of 16th January. 1967, in connection with Rootes Motors. Ltd. (Rootes) and confirm our Undertakings as follows:

1. (i) Chrysler will not initiate any action to impair either the home or overseas operations or the management and direction of Rootes as a British Company in its relations with the Government, labour, its British shareholders, and the public.
2. (ii) Chrysler undertakes to maintain a majority of British Directors on the Board of Rootes.
3. (iii) Chrysler confirms the plans of expansion covering development work at various factories and especially at Linwood in Scotland where the major development will take place and where it is planned to increase employment by several thousands; these plans are essential if Rootes is to remain 47 competitive, achieve its proper share of exports and return to reasonable profitability.
4. (iv) Chrysler plans to achieve a progressive increase in the export of Rootes products without restriction to all practicable markets and to continue to make available its full international organisation for this purpose. They note that, in the view of Her Majesty's Government, the test of the fulfilment of this undertaking would be that the export percentage of the products of the Rootes Group should be at least as high as the average for the British Motor Vehicle Industry as a whole.
5. (v) Chrysler will nominate a Rootes Director (British) to each of the Boards of Simca S.A. and Chrysler International S.A.: and it is understood that a Simca Director (French) will be nominated to the Board of Rootes.
6. (vi) Chrysler confirms its intention to leave at least 15 per cent. of the entire equity capital (Ordinary, "A" Ordinary and Preferred Ordinary) in the hands of shareholders other than Chrysler, provided that in calculating this 15 per cent. Chrysler may take into account any shares held by the Industrial Reorganisation Corporation (I.R.C.) or put by I.R.C. to Chrysler (in accordance with Undertaking (vii) below).
7. (vii) Provided that Chrysler acquires Preferred Ordinary Shares in excess of its rights entitlement of £6,263,686 nominal, it will make available to I.R.C. at par up to £1,512,228 nominal of such excess, i.e., up to 15 per cent. of the total Preferred Ordinary Shares, of £10,081,519 on condition that I.R.C. participate to the same percentage in Chrysler's undertaking to subscribe up to £10,000,000 Unsecured Loan Stock. I.R.C. will have the right on 1st January, 1972, to put these securities to Chrysler at par plus any accrued but unpaid dividend or interest.
8. (viii) I.R.C. will have the right to nominate one Director on Rootes Board as long as its owns all the securities mentioned in Undertaking (vii) above.

We agree that these Undertakings may be made public.