HL Deb 19 February 1987 vol 484 cc1221-9

4.11 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place in connection with the Rover Group. The Statement is as follows.

"With permission, Mr. Speaker, I should like to make a Statement concerning the Rover Group.

"I am pleased to be able to announce today the Government's approval of the Rover Group's 1987 corporate plan. The plan is reviewed annually to cover a rolling period of five years ahead; the strategy in this plan, which relates to the period 1987 to 1991, will evolve in that period to meet market developments. In accordance with usual practice I am today placing in the Library of the House a summary of the plan, excluding commercially sensitive details.

"The plan sets out a positive course for the continuation of Austin Rover as a major producer and luading exporter of cars made in Britain. The prowramme of model collaboration with Honda will be taken forward with a new medium-sized car, AR8, for which a manufacturing agreement should shortly be concluded. The future relationship between the companies will of course continue to develop in the light of experience, but it is the intention of both companies that the relationship should be a long-term one and should endure beyond the life of existing design and production contracts. The Government very much welcome this joint intention to continue to strengthen links in the future.

"The corporate plan provides for the new K series engine to be taken forward to full production and used in Austin Rover's smaller engined cars. This engine will equip the company for the next decade with a new high economy engine designed to meet new emission controls and will also make a major contribution to Austin Rover's strong presence in the small car sector which, with the planned further development of the model range, is a vital element in the company's marketing plan.

"Turning to Land-Rover, the plan takes account of the launch of Range Rover in the United States this year which will be a major step in diversifying Land-Rover's market base.

"On the commercial vehicle businesses my honourable friend, the Minister of State for Industry, told the House on 13th January that the sale of Leyland Bus to a management buy-out had been completed. I told the House on 2nd December that Rover Group was also holding commercial discussions with DAF in relation to Leyland Trucks and Freight Rover, and separately with Paccar in relation to the trucks company. Following these negotiations, Rover Group and DAF have proposed that Leyland Trucks, DAF Trucks and Freight Rover shall combine to form a new Anglo-Dutch joint venture.

"As recommended by the Rover Group board, the Government have accepted these proposals which create a company with the capability to achieve a major presence in the European commercial vehicle market. The agreement will also include the associated parts operations and certain overseas operations. These proposals build upon important existing distribution links between companies. Rover Group will take a 40 per cent. shareholding in the new grouping based on the value of the assets they bring to the merged operations and will have board representation. DAF will hold the remaining 60 per cent. Market conditions permitting, it is the firm intention of Rover Group and DAF to float the company within two to three years.

"Within the joint company Freight Rover, which is planning to invest in a major model replacement programme, will continue to manufacture vans at its Common Lane site in Birmingham. Leyland will continue as the focal point for truck manufacture in the United Kingdom, and I expect the Albion plant to have a continuing role in the joint operation as a producer of axles.

"These decisions take place in the context of severe overcapacity in Europe. As I made plain in my Statement in December, all the commercial options open to Rover Group in relation to the trucks business would involve significant rationalisation and restructuring, with inevitable job losses. I regret these. The Scammell plant at Watford will be closed and its production transferred to Leyland. The engine and foundry plant at Leyland will not be part of the new company and activities will be gradually run down for closure by the end of 1988. Some 1,700 jobs will be lost through these closures and a further 560 through slimming of the Leyland and Albion operations. Employment levels at Freight Rover are expected to be maintained.

"I believe that this agreement offers the best prospect of building a secure long-term future for Leyland Trucks and Freight Rover, and the House will be pleased to know that the plan developed by the two companies envisages significant expansion of truck production at Leyland, including for export, and an important expansion of the export of Freight Rover vans.

"As part of this restructuring the Government intend to write off the accumulated debts from Leyland Bus and Leyland Trucks left in Rover Group and the restructuring costs resulting from their sale. The Government have notified the European Community Commission of this intention and the normal procedures are in train. The Government intend to provide up to £750 million for this purpose. I am laying an order today under the Industry Act 1980 and Rover Group will hold a general meeting in March.

"The proposals which I have announced today will strengthen both Rover Group and the vehicle industry in this country. Success now depends on achievements in the market place. Mr. Day has focused sharply on the need for commercial success in recent months and I am encouraged by news that Austin Rover's market share so far this year is sharply up on that of recent months. With new marketing initiatives increasing sales, recent successes in the fleet market, such as the orders by major car rental companies, and the launch of the Sterling and Range Rover in the United States this year, Rover has the opportunities and skills to succeed.

"In short these proposals will give the go ahead to Rover Group's corporate plan, safeguard the manufacture of trucks within the UK in the context of a new European joint venture, and free Rover Group from the accumulated debt of the truck and bus businesses."

That concludes the Statement, my Lords.

Lord Williams of Elve:

My Lords, the House will be most grateful to the Minister for repeating the Statement made by his right honourable friend in another place. The Statement leaves certain questions unanswered and announces what we on this side of the House would regard as sad news. Perhaps I may ask the noble Lord certain questions that seem to be unanswered.

Are we to take it from the corporate plan that the Government have now approved that Rover will continue as a volume car producer with a full range? In asking that question, I very much hope that the reply will not be that the Rover corporate plan is just to slim down the operation in the short term for reasons of privatisation. Are the Government ready for the long haul?

We are pleased that the Government have abandoned their plans to sell Land-Rover abroad. Are those plans now buried for good? Or is it still possibly on the agenda that Land-Rover might be part of some other deal which this Statement does not mention?

I turn now to the commercial vehicle business. This, indeed, is a major shake-up and there is, as the Statement says, bad news for the communities in the North-West and probably in the West Midlands, too. Why was Freight Rover included in the DAF deal when it was not included in the deal with Paccar? Was it put in as a sweetener, or was there some commercial justification that we do not know about?

Is the noble Lord the Minister aware that the proposals outlined in the Statement do not, in fact, constitute a joint venture? It is a 40–60 company where control remains with DAF. What assurances can the noble Lord give, first, about the powers of the Rover directors on the new board and, secondly, about the shareholding of the company after it is floated, as is the firm intention according to the Statement? Will the noble Lord also tell the House what will be the effect on component manufacturers, other than Albion which is to be included in this particular transaction?

The worst news comes, of course, in the destruction of the engine and foundry plant at Leyland. Will the noble Lord tell the House what the Government feel will be the effects on the community in the North-West arising from the loss of some 1,700 jobs immediately and a further 560 jobs through the slimming of various operations? Does the noble Lord really believe that the Leyland workforce, which has been a dedicated workforce and has soldiered on throughout the years, will accept those losses happily and conveniently?

I turn now to the last part of the Statement. What guarantees can the noble Lord give the House that the manufacture of trucks within the United Kingdom will be safeguarded? Is there any provision in the agreement with DAF to safeguard that? It will not surprise the noble Lord to know that we on this side of the House feel that it is another example of industrial retreat. It will have a serious effect on the communities involved and a serious effect on the morale of the workforce and those who have served loyally in this industry. Will the noble Lord please take on board the fact that these are areas where we must have a proper sense of industrial renewal and purpose and not simply sell our businesses out to the nearest bidder?

Lord Diamond

My Lords, on behalf of these Benches, I offer our thanks to the noble Lord the Minister for repeating the Statement. May I say immediately that we welcome those parts of the Statement which broadly we can call good news and we do not need, therefore, to ask further questions on those matters. We must concentrate on the proposed merger which has very unhappy possibilities attached to it.

Before I come to the major difficulty, I have one or two minor questions to put to the Minister. These relate, first, to the share of directors. We are told that it is a merger based on the respective value of the assets. We understand that very well. As a result, there will be a shareholding of 40 per cent. and 60 per cent. and there will be board representation for Leyland. Can we be told what that board representation amounts to in the first place? What will be our share on the board? How many directors will Leyland have? It is the board which makes the decisions and runs the business, and we are therefore very interested in that angle.

The estimate is that some 2,260 jobs will be lost. That is bad enough, but much larger figures have been suggested. Therefore, I want to know whether the Government consider that this figure covers not only the immediate losses but also losses, say, over the next five years resulting from this decision. Does the figure include not only losses of those directly employed but also the indirect losses relating to the component and other manufacturers who serve Leyland and who will be affected by this?

If it is a merger where both sides are putting in their assets, how many job losses are contemplated in Holland? Surely it is not the case that there will be sacrifice on only one side. One side is composed of two companies and the other side of one company, but there are simply two sides. Surely it is not the case that each side should put its assets into this merger and as a result there will be an immediate loss of 2,260 jobs in the United Kingdom and no loss of jobs in Holland. That cannot be a merger, can it? That is a one-sided sacrifice. We want to be absolutely clear on that point.

Going beyond that, the Statement, which is set out in very clear terms, states that discussions have been going on with DAF—that is, the Dutch company—in relation to two groups: Leyland Trucks and Freight Rover. There have been separate discussions with Paccar, the American company, relating only to the trucks group. Therefore, these discussions are not comparable. The bids which have been put in for one cannot be compared with the bids which have been put in for the other. We are talking about two separate sets of negotiations.

We are told which set of negotiations it is proposed to accept. I ask, why? What has happened to the negotiations with Paccar? That is a large, profitable American company which already owns Foden in the United Kingdom. I am told that Paccar states that there will be no job losses if it takes over. It has also held out the prospect of selling more than 3,000 Leyland trucks in the United States—the seven-and-ahalf-tonne truck which I believe is called the Road Runner. Therefore, on the face of it the Government have very good reasons for negotiating with the American company for the same deal that they have negotiated with the Dutch company. Why have the Government offered one deal to the Dutch company and something else to the American company and then proposed to come to terms with the Dutch company only? On the face of it, there are very good reasons for negotiating to a conclusion with the American company.

I do not know the answers to those questions and it is for the Government to give them to us. It is for the Government to tell us why they have not proceeded with negotiations with both parties for selling the same two things. If for some reason they have not done so, perhaps I may suggest very strongly to them that they should not finalise the negotiations with the Dutch company until they have pursued negotiations to a conclusion on the same basis with the American company. We should then know which was the better deal. Until that has been done I think that the Government should completely postpone coming to a final conclusion on this deal.

4.30 p.m.

Lord Lucas of Chilworth

My Lords, I am most grateful to both noble Lords for their reception of this Statement. I shall certainly do my best to answer the main questions that have been put to me.

Let me say straight away that as regards the Rover Group corporate plan, the Rover Group and Austin Rover will continue with a full range, commensurate of course with the market place and the commercial decisions of the company. I think that it is a little mischievous of the noble Lord, Lord Williams, to suggest that the acceptance of the corporate plan by the Government, as I set out when repeating the Statement, is in any way related to other events that may come to pass over the next few months.

I turn to the point that was raised by both the noble Lords, Lord Williams and Lord Diamond, concerning the two transactions and the relationship with Paccar. It is true that Paccar is a substantial company with whom the Rover group negotiated, but it was Paccar which decided that it did not wish to negotiate on the basis of the truck business and Freight Rover, whereas, on the other hand, DAF wished to do so.

Perhaps if I may answer the question from personal experience in that highly competitive business, van and truck go together neatly. Van on its own would not be acceptable, so there is no question of not comparing like with like. One was looking—as indeed the Rover Group was looking—at the best possible deal that could be made for the truck and the Freight Rover van business. Undoubtedly the new joint company will open up great opportunities for Leyland, particularly in the light truck area and more particularly in that of van, in that it will be able to move into a very much larger market place, where DAF is already established and where Leyland Trucks and Freight Rover do not have an established distribution.

I cannot possibly accept from the noble Lord, Lord Diamond, that there should be any postponement of this decision. We have been talking about the decision for many years now. That brings me rather naturally to the last question that was asked by the noble Lord, Lord Williams, as to why we are doing this and his suggestion that it is absolutely an industrial retreat. It is not an industrial retreat at all. It is a structural solution to a structural problem that has been with the commercial vehicle market for many years, and it has to be set against a world overcapacity as well as a European overcapacity. This joint company will strengthen both the Dutch company and our own in meeting the competition that lies ahead.

As regards the question of the 40:60 relationship, I think that the noble Lord, Lord Williams, suggested that those two figures showed an imbalance. It is a joint company. Let there be no mistake about that. The Rover Group will be represented on the board of the new joint company by the Rover Group chairman and the finance director. They are there representing a major shareholder with 40 per cent.

Some component manufacturers may be affected in the short term. However, we believe, as does the Rover Group board, that the new joint company will offer greater opportunities. There is already evidence that Freight Rover production will be increased. We believe that there will be greater opportunities and that in the longer term there may well be further job opportunities.

The noble Lord asked me about security in the long term. I believe that the sacrifice that is being made today, the inevitability of which has for some years been evident to all who have studied this market, will secure in the long term a viable commercial vehicle operation based in the United Kingdom and employing a lot of United Kingdom people. As noble Lords will recall from when this matter was discussed in 1985 and last year, it is the long-term viability of this section of the automotive industry that we have been seeking to secure. We believe that this joint company will do that. DAF has made it clear that it intends to continue with production in this country and I have no reason to suppose that it will not do so.

I think that I have answered the question on job losses from the noble Lord, Lord Diamond, and his questions on Paccar.

Lord Tordoff

My Lords, I do not think the Minister has quite answered the question put by my noble friend about how many job losses there will be in Holland.

Lord Lucas of Chilworth

My Lords, I do not know the answer to that question. I do not think that there is any relationship whatsoever. The interest that the Rover Group and the Government have kept to the forefront is the interest of our commercial vehicle industry. We know that there will be some job losses. Let me say quite bluntly that whatever may be the position in Holland, had we not concluded the negotiations (which had been going on for a long time), inevitably there would have been very many more job losses in the United Kingdom, because the truck industry, as represented by Leyland, could not have been sustained in the face of the competition in view of the overcapacity in the market place. I believe that there is a net gain for the work people in the truck industry in that there is a secure and viable future for them. I have suggested—and I believe—that the expanded market and the greater opportunities that are offered will in their turn give further job opportunities in the industry.

Lord Williams of Elvel

My Lords, I must press the Minister on two questions. He accused me of being mischievous about the privatisation plans which may lie behind the Rover corporate plan. Is not he himself being less than frank? Is he now saying that the corporate plan has been devised not for the purposes of privatisation but for the purposes of ensuring that this company will remain in the public sector?

Secondly, the Minister commented on the question put by the noble Lord, Lord Diamond, about job losses in Holland and so forth. He has accepted that control of the joint venture—I repeat, control—will be with DAF. As any commercial animal will know—and the Minister is a commercial animal—it is the controlling shareholder who makes the commercial decisions at the end of the day. Any assurances that may be given now or any ideas that the Minister may put forward to this House, failing proper guarantees, can be overruled by the controlling shareholder. That is the fact of the matter.

Lord Lucas of Chilworth

My Lords, with regard to the privatisation of British Leyland, the Government have never made any secret of the fact that it is their intention to return that company to the private sector as soon as practicable. That remains the Government's stance.

I said that the noble Lord, Lord Williams, was being a little mischievous; I think that he was drawing a red herring when he referred to the control of the new joint company. I have said how it is to be set up. I have said that it is the firm intention of both partners in this joint venture company to float it within the next two or three years. I do not know, and nor can I tell, how the shareholding will then fall. Notwithstanding what the noble Lord says, it must be in the long-term interest of those employed in the truck and van industry in this country to have an arrangement such as this, and so relieve British taxpayers of the necessity to pour ever more money into a loss-making company, an operation that loses about £1.5 million a day. We and the Rover Group board believe that this arrangement will lead to the best opportunity for the continuance of a truck-and van-building business in the United Kingdom.

Lord Hatch of Lusby

My Lords, the noble Lord has spoken of wider markets, jobs and over-production. Does this new merger have any plans to re-open the Bathgate British Leyland works which were shut two years ago because the Nigerians were unable to purchase the lorry kits that were being manufactured at that plant? He talked about over-production. Is he aware that there is gross under-production of the trucks which are needed in many parts of the third world, particularly in Africa, to transport food to those who are dying from starvation? Can he give the House any assurance that the work British Leyland was doing to provide Nigeria with the trucks it needed to save those lives will be resumed under this new arrangement?

Lord Lucas of Chilworth

My Lords, there are no plans, or none that I know of, to re-open the Bathgate plant. With regard to wider markets, it is for this new Anglo-Dutch company to decide in which markets it wants to engage. I understand the concern of the noble Lord, Lord Hatch of Lusby, about the humanitarian aspects and the inability of some countries to transport food aid because of the lack of trucks. I suggest that that is well outside the area of the Statement and the setting up of a joint company. It is for that joint company to make its commercial decisions about the world markets that it will tackle.

Lord Diamond

My Lords, I thank the noble Lord for some of the answers that he has given me which go some way, but not the whole way, towards answering the questions that I have asked. We are anxious to know whether this is a merger or a takeover. Let me be precise. The noble Lord said that we will have two directors and 40 per cent. of the shares. Can the noble Lord say whether DAF will have three directors in proportion to the shareholding, 2:3? That will confirm that it will have a majority on the board and a majority of the shareholding, and so what the noble Lord, Lord Williams of Elvel, has suggested is therefore right.

We also want to know the position with regard to job losses in Holland. If there were a proportionate sacrifice as well as proportionate assets, there would be over 3,300 job losses in Holland. Surely the Minister knows whether the Dutch company has said that it is prepared to adjust production proportionate to the assets (as takes place in a normal merger) and will therefore allow production to fall in Holland to the extent of 3,300 jobs. We want to know whether it is a merger or whether once more the Government are hauling down the Union Jack.

The noble Lord said that Paccar was not prepared to make an offer for the two groups for which DAF was prepared to make an offer. With all respect, I ask the noble Lord to check his Statement. He will be embarrassed if Paccar puts out a statement that it is prepared, and has been prepared ever since it knew that two groups were on offer, to enter into negotiations to purchase on better terms the same articles as DAF is purchasing.

Lord Lucas of Chilworth

My Lords, I thought that had made it clear that this is neither a takeover nor a merger. This is a new company; 40 per cent. of that company will be United Kingdom owned and 60 per cent. will be Dutch owned. We shall have representation on the board. It is a new joint Anglo-Dutch company. I should have thought that the noble Lord would be pleased that we have been able to secure an agreement for the reasons that I have described with one of our European partners. It will help us enormously to secure our share of the European truck and van market. The other matters that he raised are commercial decisions for the board of the new company. It is not for Her Majesty's Government to tell it in which areas it should engage. That is precisely the point of encouraging the new company.

I have answered the point about Paccar. At the time of the negotiations, Paccar was not interested in the van business. What was being negotiated and the assurances that Paccar gave, set against what the new joint company was offering, caused the Rover Group board to believe that the new joint company was in the best interests of those engaged in the business. That was a decision with which Her Majesty's Government agreed.