British Leyland 1985 Corporate Plan (Hansard, 17 June 1985)

HL Deb 17 June 1985 vol 465 cc26-33 26

§ 4.14 p.m.

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)
My Lords, for the convenience of your Lordships and with the permission of the House, I 27 shall repeat a Statement on the British Leyland 1985 Corporate Plan, which is now being made by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:
"With permission, Mr. Speaker, I shall make a Statement on the British Leyland 1985 Corporate Plan. I am making available in the Library of the House and in the Vote Office a report by British Leyland on its recent performance and details of the 1985 Corporate Plan.
"The Company submitted its corporate plan in December 1984, at the end of a year in which British Leyland's recovery had been slowed by continuing over-capacity and highly competitive conditions in most of British Leyland's markets. There has however been a significant improvement in performance in the first part of this year.
"In March the company put to us outline proposals for further collaboration between Austin Rover and the Honda Motor Company, extending the successful collaboration on the Acclaim, Rover 200 series and XX executive car project. The central element was a joint design and development programme on a further new car, embodying the best technology of both companies. It was also proposed that ARG would manufacture in the United Kingdom the Honda version of the new vehicle and Honda would manufacture in Japan for ARG. British Leyland would also manufacture other Honda models for European sale. Honda also said it was considering setting up its own engine manufacturing plant in Swindon to supply engines for these Honda vehicles and the Rover 213 which currently uses an imported engine.
"The Government welcomed these negotiations and have given their approval in principle to these proposals, which, now also agreed in principle between Honda and British Leyland, provide for collaboration on the new model, the manufacture of certain other cars for Honda by British Leyland and Honda's further consideration of the engine factory at Swindon.
"The Government undertook with the company an examination of both the basic corporate plan and possible variants. In the light of this, the Government have given approval to the plan as amended by British Leyland to incorporate the substance of the collaborative proposals.
"As the House knows, one of the British Leyland board's objectives is to return the business to the private sector as soon as practical. Further steps towards this objective are under consideration, and I will keep the House informed of progress".
My Lords, that ends the Statement.

Lord Bruce of Donington
My Lords, we on this side of the House should like to thank the noble Lord for the Statement that he has been kind enough to repeat. It is of course a little early for us to comment on the British Leyland 1985 Corporate Plan and its report for 1984 because these have only just been made available and they will take some time to study. One observes in the Statement that the Government have welcomed the negotiations and given approval in principle. This 28 term "in principle" occurs on two occasions. Would the noble Lord be kind enough to indicate what exactly agreement "in principle" means? Does the use of the term mean that the Government are entitled, on more detailed examination, to take a different view from the one they take at the moment?
It occurs to us on this side of the House that there has been no mention at all, despite figures that have been bandied about in sections of the press, of the financial commitments, if any, that result from the approval by the Government of the corporate plan. The Statement mentions—and then I think skates over a little—the fact that the Government considered a number of variants to the plan. Perhaps the noble Lord will confirm that one of these was a suggestion which emanated from No. 10, that British Leyland should be required to install engines manufactured by Honda. It may be only a rumour; but in the light of that, one should like the assurance of the noble Lord that, despite the intention of Honda to set up a manufacturing plant in Swindon—and one welcomes any endeavour to set up manufacturing capacity in Swindon—British Leyland will, in all circumstances, retain its responsibility for engine manufacture, which indeed is a key aspect of the car manufacturing industry in the United Kingdom. We on this side of the House are extremely nervous of abandoning to any foreign company, or any company from overseas, responsibility for making engines for British cars, leaving the car industry here in the position of being purely an assembly operation. We on this side of the House regard the retention of an engine manufacturing capacity in this country as being one of the basic essentials for the retention of the integrity of the British motor-car industry.
From what one has been able to gather from a very brief glance at the 1985 corporate plan and its supporting documents, one gathers that there has been a decline in the demand for buses in the United Kingdom. Will the noble Lord take it on board that one of the principle causes for the decline in the prospective demand for buses has been the Government's ridiculous proposals for deregulation, which have spread considerable uncertainty in the whole of the transport industry? We should like to consider further details of the 1985 corporate plan, as and when we have had an opportunity of examining it. But, in the meantime, we should be pleased to have the Government's assurance of their firm intention, come what may, that a car manufacturing industry will be fully maintained in this country in the national interest.

§ Lord Diamond
My Lords, I should like to thank the Government for continuing the practice of issuing a Statement of this kind to accompany the publication of an important and detailed document. It is a wise practice and it enables us the better to read the document in question. Of course, it means that those of us who have to deal with a Statement and have had no time to read the accompanying document must be a little guarded in what we say. I am grateful, also, to the Minister for repeating the Statement. It is in that context that we on these Benches give a guarded welcome to the Statement, especially the reference to Swindon where, undoubtedly, those who are about to 29 become unemployed in railway manufacturing will look forward to employment in engine manufacturing.
But, as has already been said, the Statement is curiously silent on finance—a most important aspect. Do I understand the position correctly, that the undrawn balance of agreed finance amounting to £110 million has been decided to be withdrawn by agreement between the Government and BL; that is to say, that BL have forgone their right—not their wish—to draw £110 million, which the Government had previously undertaken to provide by way of funds, and that no further funding is contemplated?
In that connection, therefore, one should like to know to what extent the company have been leaned on, if I may use a political expression, in order that this, so far as the Government are concerned, satisfactory conclusion could be arrived at. In short, have their plans been altered in order to enable them not to ask for the £110 million to which they were entitled, and, in particular, has this any relevance to the manufacture of the Metro replacement engine to which a good deal of publicity has recently been directed?
The Statement refers a great deal to partnership with Honda. One understands that and one also understands that it is a continuing partnership. What we on these Benches should like to ask the Government is whether inquiries have been made and consideration given to partnership with manufacturers within the Community. It seems to us a little odd, unless the commercial circumstances so compel it, that we should be looking only to far eastern horizons and not at all to European horizons in order to develop our partnership, which may be a very good thing for both partners.
The final question which I should like to ask is whether, having regard to the statement both in the report and in the Government's Statement, that one of the BL board's objectives is to return the business to the private sector as soon as practicable, the Government are satisfied that that is the best motivation for a board which is concerned to bring success to a company working in the public sector.

§ Lord Seebohm
My Lords, can the noble Lord, Lord Lucas—

Noble Lords
Order!

§ 4.30 p.m.

§ Lord Lucas of Chilworth
My Lords, I wonder whether I may, in conformity with our usual practice, answer the main Opposition speakers' comments, and in doing so perhaps I may thank them both for their reception of this important Statement. First, I wish to deal with the points made with regard to the financial arrangements and say that British Leyland themselves have not asked for any additional moneys and are anticipating that their forward investment programme, which has been agreed with the Government, can be funded from self-generated profits.
In so far as their borrowings are concerned, as in earlier years, there have been discussions with the Government on British Leyland's borrowings, and in these discussions the Government have reached agreement with British Leyland on the likely pattern of 30 their future borrowings. Agreement was also reached on the treatment of receipts from the privatisation; whether British Leyland would have the whole benefit in cash or whether their borrowings would be reduced. I am thinking particularly in terms of the widely publicised privatisation of Unipart.
The Government will carefully monitor all aspects of British Leyland's performance, including borrowings. If it becomes clear that British Leyland would want to deviate from the agreed pattern, of course the company would be talking to the Government. The board and the Government agreed last year, as has been made clear in the company's annual report, that the company would not ask for the £110 million to which the noble Lord, Lord Diamond, has specifically referred. That was the amount outstanding from sums previously indicated as being available.
So far as the engines are concerned, as your Lordships will probably know, some of the models that British Leyland market are, in fact, powered by foreign engines, notably the diesel engine in their motor-cars. But the K-series engine, which ARG have been developing for some time, will continue. On the subject of engines, whether or not Honda proceed with their plans to build an engine plant at Swindon remains to be seen. If they do proceed, we expect that Honda would include in that engine build programme a substantial local content. With regard to whether those engines would then be fitted into cars produced at British Leyland's factories, for whichever market they may be produced, we would be expecting substantial local content for those cars, and an engine built in Swindon would make a contribution there.
With regard to the decline in Leyland bus business, I cannot accept that the uncertainty in the United Kingdom and the European bus market is in any way a reflection of the Government's current proposals on bus deregulation. There is a decline in both truck and bus usage across Europe, and indeed across the world. British Leyland, sadly, have suffered their share of that decline.
The Government have a firm intention to maintain car manufacturing in this country. That is why we welcome the collaborative arrangements that have been made with Honda. The noble Lord, Lord Diamond, asked why British Leyland make collborative arrangements with a company from the Far East. The only thing I really need say here is that such arrangements are made between two willing partners for their joint benefit. I assure your Lordships that the discussions which the Government have with British Leyland—these discussions are on a continuing basis —do not include (I quote the noble Lord, Lord Diamond) any "leaning upon". These discussions take many forms. The Government recognise British Leyland's wishes; and, equally, British Leyland accept that the Government also have some desires, particularly recognising that some £2,230 million worth of taxpayers' money is being used by that company. It may be useful if I say at this stage that the company have and are enjoying an improved acceptance or their products, and currently have about 18.3 per cent. of the United Kingdom market. The products are well accepted, and we would expect the company to achieve greater success as time goes on.
31 I think I have answered all the questions. Perhaps I may add that, with regard to the Swindon project, the Government look to and encourage inward investment, especially where it shows benefit to this country and to the motor industry.

§ Lord Harmar-Nicholls
My Lords, my noble friend seemed rather hazy about what is likely to flow from the important question of the provision of engines. Would it not be reasonable to expect that at any rate the joint cars that were sold in Britain and Europe contained the British constructed engine and those sold in the rest of the world perhaps contained the Honda engine? My noble friend said that the discussions were still going on. I hope that in those discussions, as a minimum, he will push for what I have suggested.

§ Lord Lucas of Chilworth
My Lords, the engine programme of British Leyland—the A-series, the S, O and V8-series—is continuing. As I understand it, the K-series, which is to replace the A-series which is now fitted to all the Metros, some Maestros and some Montegos, is to be further developed by British Leyland. With regard to a collaborative motor car —the Rover 213 and the XX—various engine options will in all probability be utilised, dependent, I would imagine, on the markets into which those motor cars will be sold. With regard to the next stage and the collaborative motor car which will succeed the XX series, I think it would be premature of me to suggest to British Leyland or to Honda which engine should be fitted and where it should be made. I do not think that either of the two companies has come down firmly on that point.
It is recognised by British Leyland, and has always been recognised, that an engine is very much the heart of the motor car and should be produced by them. Whether a collaborative arrangement for engines is ultimately decided upon is for the commercial decision of those two companies, but certainly any engine that is produced in this country by virtue of such an arrangement will have a local content. Any motor cars that are produced for the overseas market by British Leyland to use up some of their spare assembly capacity would have a substantial local content. That would be good for the British motor car industry and the people employed in it.

§ Lord Gladwyn
My Lords, as a non-expert may I ask whether the production in this country of what would obviously be to a large extent Japanese motor-cars, and their export, notably to the Community, under British labels as British cars, is likely to appeal to our colleagues in the Common Market and, indeed, to the United States Administration? Has there been any expression of concern on the part of our colleagues?

§ Lord Lucas of Chilworth
My Lords, I cannot accept that a motor car which is built as a result of collaboration would be not British. If one accepts a substantial local content under whatever badge it may be, it will be largely a British motor car made in the United Kingdom by a United Kingdom workforce. That it may have variants to satisfy different world markets is 32 a rather different point, but I am quite satisfied that any motor car produced as a result of these arrangements will be largely British.

§ Lord Seebohm
My Lords, my question has partly been answered in that it is impossible at the moment to say what will be the local content of XX machines, on which we are placing so much hope. If we do proceed with making engines at Swindon under Japanese plans, will that put Longbridge out of work?

§ Lord Lucas of Chilworth
My Lords, I am glad that the noble Lord, Lord Seebohm, has had most of his question answered. Local content is on a value formula and is accepted by all the leading manufacturers and by those who seek to make an inward investment. With regard to the possibility, or one might say the probability, of an engine plant being set up in Swindon, I do not believe—it is certainly not my understanding—that this plant would in any way reduce engine-building capacity or engine production in British Leyland's own factories.

§ Lord Dean of Beswick
My Lords, may I press the Minister further on that question? Those of us originally from engineering have seen, all too often in the past, a manufacturing base in this country surrendered for what, at the time, looked to be rather an attractive financial deal. It would be no good swapping jobs in the West Midlands to satisfy the very important need for jobs in Swindon. The Minister ought to be aware that if we now surrender our engine manufacturing capacity, which is totally British, and go out of it in this round of discussions, we will never get back in. Top priority must be given to ensuring that a fully British input in the manufacturing of motor car engines is retained, irrespective of the Japanese involvement.

§ Lord Lucas of Chilworth
My Lords, I understand exactly what the noble Lord, Lord Dean of Beswick, is saying. Let me reply immediately that there is no question of swapping jobs between the Midlands and Swindon. Indeed, we are talking of a project which Honda are considering, but no firm decision has been made. The British input to an engine is assured. There is no question of a takeover. I have said that the K-series engine—the one to replace the current A-series used in the Metros, a number of Maestros and a number of Montegos—is continuing. That the two companies may exchange technological expertise to their joint benefit would, I should have thought, have been welcomed by your Lordships. Certainly what one might call the British motor industry, with which the Government are always in contact, have expressed no fears in this regard.

§ Viscount Hanworth
My Lords, can the noble Lord say why it appears so difficult for a large firm to design and manufacture a new engine, whereas a very small firm, like Aston Martin, to the best of my belief produced, or gets produced, an engine without any trouble at all?

§ Lord Lucas of Chilworth
My Lords, I understand what the noble Viscount, Lord Hanworth, is saying but I do not think that it is totally germane to British 33 Leyland's engine programme. British Leyland is developing its own engines. I have said, and I repeat, that it is developing a replacement to the A-series. It is looking for, and Honda are looking for—as has been demonstrated in the very successful collaboration on, for example, the Acclaim and the current series of Rover 200 cars—the joint benefit that there is in exchanging technology and in collaborating. There is nothing mysterious in that.

§ Lord Somers
My Lords, the noble Lord mentioned the possibility of the return of British Leyland to the private market. Can he give some sort of assurance that when that long-awaited event occurs, British Leyland will be broken up into its component parts? I am sure that the noble Lord will agree with me that there is just as little competition with a private monopoly as there is with a public one.

§ Lord Lucas of Chilworth
My Lords, I cannot give the noble Lord, Lord Somers, that kind of assurance. The board of British Leyland wants to return to the private sector. We shall be discussing with the board, at the appropriate time, the best way in which this might be done to the advantage of all concerned.

§ Lord Stoddart of Swindon
My Lords, the noble Lord was careful in what he said about continued engine manufacturing by British Leyland. However, am I correct in believing that what he is actually saying is that there will be no diminution of engine manufacture by British Leyland? Can he also say whether local content means what he actually said; that is, that it will be British content and not EC content? He will recall that the Nissan deal was made for 80 per cent. local content but that meant EC and not British content. Does he really mean that there will be 80 per cent., or more, British content and not EC content?
May I also ask the noble Lord how quickly the jobs with Honda will build up in Swindon and how many jobs will be involved? Will it be possible for the jobs lost by British Rail Engineering to be taken up?

§ Lord Lucas of Chilworth
My Lords, I certainly did not wish to be guarded. The Austin-Rover group is alive to the opportunities for improving performance through collaboration with other manufacturers, including Honda. However, I do not think that British Leyland or Honda would expect me to refer in public to their confidential discussions about commercial matters which include the contents of motor vehicles, their engines, and so on. I can confirm—and this is only repetition of what I said earlier—that British Leyland is proposing to continue with its own engine manufacture.
Local content, which the noble Lord mentioned, does mean, of course, the European Community as well as the United Kingdom, because we belong to the Community. In so far as Swindon and jobs are concerned, I am sorry that I cannot tell the noble Lord when a job take-up might occur or, indeed, how many are involved, since Honda's plans for the Swindon site have not yet been determined or communicated to Her Majesty's Government.