Birmingham Post - Business Blog

MG Rover: Don't forget the Workers

2009-07-10T19:10:34Z

Whilst the Phoenix Four - via their media spokesperson - engage in an a somewhat unseemly public spat over who was responsible for the collapse of MG Rover four years ago with the loss of 6,300 jobs at Longbridge and several thousand more in the wider economy, we need to remember who really lost out here. I doubt if it was the Phoenix Four, who did rather well out of the whole affair - after all their remuneration, pensions and other benefits ran into the millions.

Rather, it is the workers and their families, who deserve some answers as to what went so wrong at MG Rover under Phoenix's stewardship.

Lord Mandelson's statement earlier this week that the Serious Fraud Office (SFO) is to investigate the circumstances surrounding the collapse MG Rover back in 2005 did genuinely come as a surprise in that if there were grounds for calling in the SFO, one wonders why it wasn't done much earlier.

However, Mandelson was acting on the advice of government lawyers, and I don't buy the argument that is an attempt to kick the report into 'the long grass' as some on the Tory benches have claimed. In fact, the government has attracted a lot of political flack for doing this.

]]> If, as some suspect, the inquiry report does contain criticism of the government, then politically it would make sense to get it out into the open now so that it's forgotten by the time of the next election. The government instead have asked the SFO to look at the facts.

If there is the possibility of a prosecution then the SFO needs to be given the time to look at this without their efforts being potentially prejudiced. Hopefully the SFO can act quickly so that one way or another the next steps become clearer. What is important is that (a) workers get answers soon (they've been waiting for four years) and (b) the money locked up in bank accounts can be released to the MG Rover Trust Fund.

None of this is to say that the government isn't beyond criticism; hopefully the Department of Business report will pick up on this.

However, it probably won't be the kind of criticism that the Phoenix Four have been levelling at the government over the last week. Rather, the government could well get flack for intervening to pay Rover workers' wages for a week back in 2005 to see whether a Shanghai deal could be salvaged, a point which Ken Clarke makes in today's Post.

Actually, there is a deeper and more profound criticism of the government in the failure - or non existence - of their industrial policy. It was clear to many analysts that MG Rover was running out of time back in 2002/3 when it was flogging off key assets such as land, its finance arm and parts division in an increasingly desperate attempt to keep going, and still had failed to find a partner.

Government help at that point may have helped the firm in getting to Shanghai earlier, yet such proactive intervention has not been seen part of government industrial policy - nor did Phoenix appear to be asking for such help back in 2002/3 (perhaps they could correct me on this if I'm wrong).

That lack of a coherent industrial policy can be seen again today in the ongoing crisis affecting the industry. Whilst the government has rightly introduced a scrappage scheme, and announced a £2.3 billion auto support package last January, not a single penny has yet reached any auto producer in the UK. Nor has any support for car finance arms been forthcoming, unlike in the US, Japan and France.

As Ken Clarke rightly points out in today's Post, "support should be given to the credit arm of the companies to enable them to offer good terms for hire purchase schemes and loans. Lord Mandelson at one time supported that but couldn't get the Treasury to agree... what we have seen is for months is that he's talked about helping the car industry and produced nothing."

Above all, though, it is the MG Rover workers and their families (and indeed today's LDV workers) who need to be remembered. As our Economic and Social Research Council funded research has shown (see here for recent Post coverage of this), the human toll of the firm's collapse has been profound.

The need for workers to change occupation to find employment resulted in significant pay cuts, with average pay falling by £5,640 per year in real terms. Two-thirds of workers suffered wage falls while a third reported an increase in their salaries. People who found work in four sectors - wholesale and retail, real estate and business services, education and health and social work - took average cuts of more than £6,000 in annual income.

Our work shows that nearly a quarter of workers surveyed were in debt or dipping into savings while 36 per cent said they were "just about able" to manage on their incomes. And judged against national levels, it appears that the ex-Rover workers moved into jobs with lower levels of autonomy, challenge and skill use, and fewer opportunities for progression than other workers in the UK.

It is important to note as well that many workers had worked at Rover for a very long time, some even all their life, and the closure came as a real shock. Our interviews indicate that while some were ready to move on almost immediately, others needed more time to adjust. Many had never been unemployed. They did not know how to write a CV or how to behave during a job interview.

A majority found the experience of going to the Job Centre very difficult. Many reported high levels of stress and anxiety during the first year after the closure. Support from family, friends and ex-colleagues was critical - in fact, 70 per cent of workers reported finding their current job through personal networks or initiative.

Despite all of this, thanks to personal initiative and a huge effort by government agencies to pick up the pieces, 90% of ex MG Rover workers were back in work a year ago. Yet for some that remains a precarious situation, with many having had more than one job since Longbridge closed. Some will also have lost job again in the recession.

These are the real victims of this sorry story, and we need to bear this in mind in the future in backing high quality manufacturing jobs and R&D in the future - starting with JLR.

The latest webcast on our MG Rover research can be found here (scroll down for the video).

PS The Phoenix Four's criticisms of Lord Bhattacharyya are well wide of the mark. He is a distinguished industry expert who has done much to support manufacturing in the Midlands.

Professor David Bailey works at Coventry University Business School.

MG Rover: Don't forget the Workers

2009-07-10T19:10:34Z

Rather, it is the workers and their families, who deserve some answers as to what went so wrong at MG Rover under Phoenix's stewardship.

None of this is to say that the government isn't beyond criticism; hopefully the Department of Business report will pick up on this.

These are the real victims of this sorry story, and we need to bear this in mind in the future in backing high quality manufacturing jobs and R&D in the future - starting with JLR.

The latest webcast on our MG Rover research can be found here (scroll down for the video).

PS The Phoenix Four's criticisms of Lord Bhattacharyya are well wide of the mark. He is a distinguished industry expert who has done much to support manufacturing in the Midlands.

Professor David Bailey works at Coventry University Business School.

Further Nail in the Pension Fund Coffin

2009-07-08T08:45:00Z

As if Gordon Brown has not already done enough to kill off pension provision in the UK, Alastair Darling announced measures in the budget which will put yet another nail in the coffin.

For 2009/10 anyone with income of £150,000 or more from all sources in that or either of the two previous years, will lose higher rate tax relief on any pension contributions in excess of £20,000 per annum, unless they have a past history of paying premiums of a higher amount at least quarterly or more often.

If they have paid regular annual premiums for many years - hard luck!

If they have regularly had their bonus paid into their pension fund but the bonus would put their income from all sources above the £150,000 threshold - hard luck. The bonus will be treated as salary for the purpose of applying the £150,000 tax limit.

Existing final salary schemes are totally protected from any charge under the new rules unless additional benefits are being given to a member.

What do these rules mean in practice?

If two people both earning £160,000 a year have regularly put £30,000 a year into their pension fund but one pays monthly premiums and the other pays annual premiums one will get full tax relief on £30,000, the other will lose higher rate relief on £10,000 at a cost to him of £2,000!!!

If someone has total income of £149,000 per annum and his employer puts £100,000 into his pension fund he will suffer no tax on the employer's contribution. If he receives bank interest of £1 making his income up to £150,000 he will pay higher rate tax of £20,000 on the pension contribution; a marginal tax rate of 2,000,000%!!!

Whatever happened to equality between taxpayers? Pressure is being put on government to change these ludicrous rules. We can only hope that they will see sense.

In the meantime people who have over many years saved for their retirement in their pension fund see yet one more incentive to save in this way being withdrawn. Is it any wonder that taxpayers are getting totally disillusioned and moving away from pension funds as a means of providing for their retirement The real danger, of course, is that people will stop saving for their retirement altogether or spend the savings when harder times come, becasue they are no longer locked in a pension fund.

I can't resist a final word about the MPs particularly since next month they are going to have to declare all of those lucrative additional jobs that may well take their MPs salary to more than £150,000 per annum. As I said earlier final salary schemes are exempt from the new rules and who have the best final salary schemes in the UK? Nuff said !!!

Is "There's no smoke without fire" the worst phrase in the English language?

2009-07-07T17:42:51Z

You may have seen press coverage recently of the newly-published autobiography of Dave Jones, now manager of Cardiff City. His story is not a happy one, although he emerges from it as someone of courage, dignity, forgiveness and basic human decency.

In 1999, when Mr Jones was the successful manager of Southampton, he was falsely accused of child abuse from a time when (in the mid 1980s) he worked part-time in a Merseyside school for children with educational and behavioural difficulties. The allegations were entirely made up - his (still anonymous) accusers admitted as much - by a group of former pupils at the school who were themselves in prison at the time. Despite there being no evidence against Mr Jones whatsoever, the allegations were made public, he lost his job and spent £400,000 clearing his name. His family went through goodness-only-knows-what trauma (including a visit from his local social services department to see whether his four children should be taken into care) and Mr Jones to this day endures deeply unpleasant chants from opposing 'fans' at grounds across the country. Tragically, Mr Jones believes that the news of his arrest caused his previously healthy father to fall into a coma from which he never recovered - something Mr Jones blames on the police leaking the story to the press.

And yet he was innocent. In addition to his accusers admitting that they concocted the whole thing (Mr Jones was one of a number of people against whom allegations were made, some of whom were wrongly imprisoned), one alleged at the trial that the police helped him to plug holes in his evidence.

At the end of the trial, the judge made a telling comment: "No doubt there will be people who are going to think there is no smoke without fire. I can do nothing about that except to say such an attitude would be wrong. No wrong-doing whatsoever on your part has been established."

If any good can come from this unpleasant tale, I would hope that society stops attributing guilt to people who have been accused (whether rightly or wrongly) but not found guilty of a crime. Lawyers, especially those involved in criminal defence work, are often pilloried for defending people who society assumes must be guilty. And yet, as Mr Jones's own experience shows, you only have to be falsely accused of a crime to appreciate the importance of the presumption of innocence in our legal system. As he himself admits "You know, that is a phrase that I used to use a lot. 'No smoke without a fire'. It just seems obvious that if there is a controversy surrounding someone, then something has to be wrong. But that is not a phrase you would hear me saying now. I have learnt the hard way that it is possible to be accused without there being a shred of truth". To help make the point, Mr Jones's book is simply called "No Smoke, No Fire".

That's not to say that those found guilty of crimes should not be punished in accordance with the law - rather, a serious plea that we avoid reaching our own judgment on people until the judicial process has run its course. I hope you agree.

MPs Expenses - should HMRC be the watchdog?

2009-06-30T09:53:33Z

So much has been said in the press recently about MPs expenses and flipping homes. Now that the fuss has, to some extent, died down it is perhaps time for a few observations (with a tax bias) on what has been going on.

Anyone who has to work at a number of different locations can, in principle, be re-imbursed for the additional cost necessarily incurred by him or her in performing the duties of that employment including subsistence and accommodation without any tax liability arising . So far so good.

Anyone who has two homes can, as a matter of tax law, elect which of these homes is to be exempt from capital gains tax for any particular period.

An employee cannot, under any circumstances, have his employer pay for the cost of completing his income tax return without a taxable benefit in kind arising.

MPs expenses are, we are told, to cover costs incurred to enable them to do their job, but surely as with the tax rules this should be the extra cost over and above what they would incur in any event.

It seems to me, therefore, that the best way to deal with the debacle about MPs expenses is to have the expenses claims all made available to the tax office that deals with all MPs and to let HMRC judge whether the expenses have been incurred wholly, exclusively and necessarily in the performance of their duties as MPs, using the same yardstick that HMRC apply to the general body of taxpayers.

If the expenses pass the test, then no problem. If not, MPs can either re-imburse the excess or pay tax and NIC on it.

MPs may bleat that their expenses have been approved by the Fee Office but they are still, as far as I am aware, subject to the same tax rules as the rest of us. There is no problem with security or confidentiality or with independence.

On the topic of CGT on their houses, I have to side with the MPs. They are only doing what any other taxpayer can do unless, of course, the second property is used exclusively for business purposes.

If a property or any part of it is used exclusively for business purposes then the CGT exemption doesn't apply to it/that part of it. If all of the costs of running their second property are being claimed by an MP that implies that the property is only used by them for carrying out their Parliamentary duties and is used only for business. So no exemption and one again for the tax man to sort out.

Strenuous efforts have been made over the years to persuade government to give tax relief for the cost of completing income tax returns. So far the pleas have fallen on deaf ears. Reports of MPs claiming the cost of preparing their tax returns and even taking tax advice as part of their Parliamentary expenses must be one for the tax man. If the rules allow that cost to be claimed then that is fine as long as they pay tax on the benefit like the rest of us would have to do.

]]>

MG Rover report is ready at last, after £16 million and four years. Let's hope it's finally worth it.

2009-06-27T15:03:24Z

It was originally set up by the then DTI in 2005. Nearly four years and £16 million later, the DTI has had two name changes (BERR and now BIS), and the long-awaited MG Rover has - at last - been completed.

Local MP Richard Burden who was told that the report has been completed, has quite rightly noted that "like everybody else in the area I have found it incredibly frustrating that we have had to wait so long for this report... so I now hope that the contents of the inquiry will be made available as soon as possible.

"'The escalating cost of the inquiry has also been a matter of real concern to so many people, including me. Hopefully the contents of the report will provide some answers to why it has cost so much and I certainly welcome the government's commitment to try to minimise the cost of any similar inquiries in the future. But the important thing now is to know what the report contains and I hope the government will be able to make a statement on that as soon as possible."

In an answer to a private question by Richard Burden, the business minister Ian Lucas said that in the future the government would carefully consider any similar exercises so as to "minimise" costs.

As Jonathan Walker pointed out in his News blog yesterday, there could be a delay before the report is published as its findings will determine whether any further action is needed. If action is needed, then publication of the report might be considered prejudicial to that action.

Things are further complicated by the fact - as the Birmingham Mail notes today - that the Phoenix Four have said no money pledged to ex-workers from the MG Rover Trust Fund will be paid until the inquiry report is published. The Mail believes that around £16m piled up from the sale of dealerships and the Studley Castle conference centre is stuck in a bank account, delaying potential pay-outs to former employees.

]]> As I've noted in several blogs over the last year, setting up the inquiry was indeed the right thing to do. Serious questions have yet to be answered about what happened, and the 6300 workers and their families who lost their jobs at Longbridge (plus several thousand more in the supply chain) deserve some answers. Let's hope the long awaited report comes up with them.

Whilst 90% of ex MG-Rover workers were back in work by March last year, they were earning substantially (£5600) less in real terms than when they were at MG Rover, as a research we have have undertaken has shown (see here for our latest video documentary on this - you'll have to scroll down for the video).

This research has highlighted the huge wage drop workers coming out of manufacturing have to experience. A key lesson here is the urgent need right now to support Jaguar Land Rover (see my blog yesterday on this).

I offer no excuse in repeating comments made in several earlier Post blogs and articles. It's important to remember that MG Rover went bust owing hundreds of millions to suppliers, and creditors ended up getting a penny or two in the pound for what they were owed. The pension fund deficit ran into hundreds of millions.

From 2000 to 2005, parent Phoenix ate its way through BMW's generous dowry and a valuable pile of unsold cars left over from BMW and sold off all the key assets such as land, the (profitable) parts business and the intellectual property rights to key models (in the latter case to Shanghai Auto). It was thought to be losing around £25 million a month went it finally went under in April 2005.

Let's not forget as well that management repeatedly stated that they were "20 minutes" away from an all-or-nothing deal with Shanghai Auto back in April 2005, despite both the British Government and Shanghai having looked at the books and concluding that the company was running out of cash rather too quickly for comfort.

When it was clear that the proposed wide-ranging model collaboration between MG Rover and Shanghai was not going to happen, the latter had back-up plans. Phoenix did not; it was Shanghai or bust.

Shanghai was initially beaten to MG Rover's left-overs by Nanjing who bought the remaining assets, before Shanghai and Nanjing were themselves finally brought together into a merged entity after some collective-banging-of-heads by the Chinese government.

All of this is simply a quick reminder (if you need it, four years on) that some serious questions remain about how this industrial meltdown occurred. However, we don't really know exactly what the DTI / BERR / BIS investigators have actually been looking at.
Back in 2005, the then DTI Secretary Alan Johnson argued that 'the public interest requires that issues raised by the (Financial Reporting and) Review Panel and developments after 2003 when the last accounts were published be investigated by independent inspectors... I have asked them to report to me as quickly as possible and in a form which will enable the report to be made public. The Review Panel has not published its report and given my decision to appoint independent inspectors I will not be releasing it". The inquiry was meant to be "speedy"; maybe in inquiry terms four years is speedy...

Back in 2005, shortly after the MG Rover collapse, I suggested ten key questions the inquiry should look at, namely:

Did the accounts add up and are they 'true and fair'?

Why did the business strategy go so badly wrong? On taking over at Rover, Phoenix aimed to produce 200,000 cars a year, bring a new model to market, return to profit and find a partner to develop new cars. None of these objectives were achieved.

Why did management take so long to get to Shanghai? Why was critical time wasted with China Brilliance and Proton beforehand?

Did the company have the resources to get a new model to market? If it did, why did the company fail to do this?

Why was the group structure so complicated when in car industry terms this was such a tiny firm?

How was the money moved around? For example, why was MG Rover paying interest when the original loan from BMW was interest free?

In the final few months, did management realise that MG Rover was going to go insolvent?

How much money did the Phoenix Four pay themselves over the five years, and was this payment commensurate with the performance of the firm?

Why did the pension fund deficit arise?

What was the role of the Government, and was this adequate?

On the latter, there were questions over the Government's backing of Phoenix back in 2000 against the rival Alchemy bid, whether alarm bells went off at the DTI in 2002/3 when it was becoming clear to external commentators that the firm was running out of time, and whether the proposed £100 million 'bridging loan' proposed in April 2005 in a last-ditch attempt to shore up a Shanghai deal was an appropriate use of taxpayers' money.

Given the situation now with LDV, I'd add a question 11, on 'chapter 11' issues (this is a chapter of the US Bankruptcy Code): do insolvency and administration arrangements work well enough in the UK? I should stress that this isn't a criticism of the MG Rover administrators PwC who did a very good job within the current legal framework they were given to operate in. They did their job in getting the best deal for creditors, by selling to the highest bidder, Nanjing.

Yet it was obvious to myself and industry analysts that Nanjing was a small firm with limited experience (it had never successfully innovated and got a new car to market) and in economic development terms it was apparent that the Shanghai bid would have delivered superior benefits for the local economy. Of course Nanjing ended up in Shanghai hands eventually, but the delays (and maybe the StadCo pullout) might have been avoided by an immediate deal with Shanghai.

So, there is a question over how we deal with company failures. Would a chapter 11 type arrangement in the UK have offered more scope to arrange a deal with Shanghai without the firm actually ceasing operation, thereby retaining more activity at Longbridge?

Or, if that was not possible, should a 'public interest' clause be brought in to the administration process to make sure that the wider economic and public interest be taken into account when dealing with such cases?

We won't be getting any answers on the administration process (which should anyway be the subject of separate review) but let's hope that the report now with Lord Mandelson addresses question 1 - 10 above. The workers still deserve some answers, four years on.

Professor David Bailey works at Coventry University Business School, and is Chair of the Regional Studies Association.

JLR losses highlight need for urgent government support for its R&D investment

2009-06-26T12:58:44Z

Tata Motors, India's largest vehicle manufacturer and the firm that bought Jaguar Land Rover some 18 months ago, released its latest financial figures today. Its sister company Tata Steel (whose UK operation Corus announced 2000 job losses yesterday) has just reported a 60% fall in profits to just under £600 million.

Not surprisingly, given the dire state of the auto industry worldwide, there is plenty of red ink; indeed Tata Motors reported its first annual loss in eight years, a loss of 25.05 billion rupees ($520 million) against a profit of 21.68 billion rupees last year.

JLR itself recorded a net loss of £281 million ($463 million) in the 10 months of the 2009 fiscal year that it has been on Tata's books. That comes after a £327 million operating profit in 2007 and £310 million operating profit in the first half of 2008. Since then conditions have deteriorated and the firm has cut nearly 2000 jobs and brought in special sabbaticals on 80% pay for over 300 hundred staff.

]]> Like the rest of the industry, JLR has been hit by the double whammy of recession and credit crunch, with the impact being felt especially in the luxury and sports utility vehicle markets. Overall, Jaguar Land Rover's global retail volumes since June 2008 were down 28%, with Jaguar actually up 1% (its XF selling well), and Land Rover down 35%.

The JLR loss announced today is pretty much in line with what I was expecting (around £300 million was my view). It should be remembered that Toyota has just recorded its first ever loss in its 71 year history, GM and Chrysler have both gone into Chapter 11, BMW profits have been wiped out and so on... this is a global problem.

After acquiring JLR, the wider Tata group has been affected by the global down-turn which has impacted on many of the sectors it operates in (cars, steel, tourism...) and has struggled to access credit itself given that wholesale markets effectively dried up last year. Tata Motors has had to issue bonds aimed directly at the Indian public last year, paying 10-11%, in part to repay the $3-billion bridging loan that it took out to buy JLR.

Tata has been negotiating with Lord Mandelson's Business, Innovation and Skills department since last year for support at commercial rates. Yet not a penny of the £2.3bn support package the government announced in January has yet reached any UK auto firm, including JLR.

In the absence of government support, JLR has secured - or has credit approval - for enough funding to meet operational requirements for the next year. Yet a UK government loan guarantee for the £340 million loan approved by the European Investment Bank for investment in R&D is urgently needed and talks are on-going on this.

Yet there has been little sign of progress of late on these talks, with concern being raised by some sources that talks were stalling because of onerous conditions being demanded by the government in return for its support. In the absence of government support, JLR might have to consider cutting some R&D investment. That's the last thing the firm needs as its product pipeline looks excellent and the firm is investing heavily in R&D and green technologies.

For example, the lightweight 'Limo Green' is currently in development, with production scheduled from 2011. The car will have an electric-powered range of 30 miles, fuel economy of 57mpg, CO2 emissions of 120g/km or less and a top speed of 112mph.

This will be one of the first electric-powered luxury saloon in the world, and will use technology similar to that in GM's Volt car (to be sold in the UK as the Vauxhall Ampera). The latter will be electric powered by batteries that can be charged by plugging into the mains grid as well as by a small engine as the car moves.

There are a whole range of other developments in the pipeline at JLR including full hybrids, micro-hybrids, small-capacity diesel engines and 'soft-turbocharged' petrol engines. There is also the exciting possibility of a small hybrid based on the LRX concept car. The use of lightweight materials will also be pushed throughout the range in order to get weight and hence CO2 emissions down.

Not surprising given this flurry of green activity, JLR accounts for as much as 50% of all R&D spend in the UK auto industry; it spends some £400m a year. If the government really wants to green the industry, it can start by supporting JLR which is working with suppliers and universities to cut carbon emissions. It has an investment programme of around £800 million in environmental technologies that will provide key green technology jobs, and has recruited some 400 engineers over the last year to work on green technologies.

Its R&D spend is ranked as the 7th largest R&D spend in the UK in any industry, and in the top 150 worldwide. Each year JLR also spends an additional £2.5 billion a year with suppliers and exports over £4 billion in products.

Lord Mandelson is of course absolutely right to state that the government does not have an open cheque book, that Tata has first responsibility to invest in JLR, and that any assistance must meet strict tests. All of these are valid points but do not obscure the simple fact that government intervention is both necessary and right. Temporary and targeted interventions will be needed to get strategically important firms like JLR through this unprecedented situation.

JLR is not an over-blown and inefficient firm in need of a 'bail out' a la GM and Chrysler. The firm is well run and the recent deal with workers, where they overwhelmingly voted for a cut in real wages in return for no further compulsory redundancies, set the bench-mark for the industry in how to manage in a downturn.

Two final points which again I don't apologise for repeating from earlier blogs.

Firstly, JLR generates at least £1.3bn a year for the government's coffers, including over £200m in tax and national insurance paid by JLR employees plus over a billion (say £1.1bn) in VAT on JLR sales. Add in the tax and NI paid by employees in the supply chain and you can see that JLR and supported companies raise an awful lot of cash for the government each year.

In this context, a £340 loan guarantee would actually be pretty good value for money for the government and the tax-payer.

Secondly, JLR is not asking for a GM-style bail-out, but rather support at commercial rates. This is all about access to finance and guarantees at commercial rates given that the state-rescued banking system still seems unable to do the job properly.

Professor David Bailey works at Coventry University Business School

LDV bids offer some hope... but we still need to look again at the administration process in the UK.

2009-06-25T10:24:57Z

As reported in today's Post (see here), there is renewed hope that LDV could yet be rescued, with a number of "very credible parties" bidding for LDV.

Names in the frame apparently include Malaysian group Westar, Indian group Mahindra and Mahindra, and Chinese car firm Nanjing, which bought Mg Rover's assets before itself being taken over by Shanghai Automotive. Other bidders may yet join the fray. The administrators have stated that there could "be some clarity around this within the next two to three weeks."

Not all bidders would aim to keep production in the UK. Whilst Westar have previously stated that they would aim to retain some production in Birmingham, other bidders may well look for a 'lift and shift' of assets and production out to India or the Far East.

]]> One factor which might encourage retention in the UK, as a great piece in the Post noted two weeks ago (click here), is LDV's Special Vehicles Operation which makes tailored vans for customers such as the Royal Mail on the track without the added delay and cost of converting finished vehicles.

Yet as the piece also rightly points out, "if a better offer comes from someone planning to rip out the Maxus presses and tooling and shift it all abroad that's what will happen... The job of the administrators is to claw back as much money as they can for the preferential creditors. They are not paid to have consciences, no matter how much they, as individuals, might want a happy outcome for LDV, its 850 employees, its suppliers and Birmingham.

This raises the wider question of whether the UK actually has the right institutional arrangements in place for dealing with these situations (NB this is not meant to question the professionalism and skill of the PwC team appointed as administrators here).

The point here is that there is no evaluation of the public interest in the UK's administration process in terms of jobs and economic development. If someone comes along and offers more cash for a lift and shift of LDV, that's what we'll see, whether or not that best for UK PLC and the wider society.

A similar situation arose four years ago when MG Rover went into administration. Nanjing offered most money for MG Rover's assets, and proceeded to ship most of them out to China. Yet Nanjing was a small player with limited resources and it had never innovated and brought a new car to market. Its JV with Fiat had performed badly and it offered little genuine prospect for a return of production and R&D back to Longbridge as had been promised.

It was only when the Chinese government banged (state-owned) heads together, forcing a merger of SAIC and Nanjing, did things start to look brighter for MG at Longbridge. The point is that it was always clear that Shanghai offered the best hope from an economic development and jobs point of view, as the unions rightly pointed out at the time, yet this was specifically not an issue that the administrators could look at.

We need to look at whether the administrators - who are court appointed officers - can be vested with a different set of responsibilities, which captures the public interest dimension.

More generally, a number of reforms could be contemplated, as we have blogged on before - see here.

Such moves might form the basis for how we treat 'business deaths' or 'near deaths' in the UK that allows for better, strategic, longer-term decisions to be made.

In LDV's case, by 'strategic' we can again highlight the fact that over the last few years some £600m has been invested in the award winning Maxus van range which could provide an ideal platform for the proposed switch into environmentally friendly green electric vans. The electric can market is growing rapidly, especially in the depot-to-depot market in urban areas. The electric Maxus is already developed and ready to roll, and LDV owns the intellectual property rights to the electric version.

In addition we need to remember that:
Sterling's depreciation improves LDV's position regarding export markets.
LDV owns the intellectual property rights and production facilities for the Maxus van in diesel and electric form.
LDV contributed around £7 million in 2008 in PAYE and National Insurance to government revenues. You could treble that by adding in the supply chain and dealer network; even a conservative estimate suggests that the government picks up £15+ million a year from LDV's operations. Add in £50+ million in purchasing and £50+ million in exports and the value of LDV to the economy and government becomes clear.
Our research on the collapse of MG Rover shows that quality jobs matter; three years on workers were earning £5600 a year less in real terms than when they were at MG Rover. The Rover Task Force cost the government £150 million in picking up the pieces. And in this case, the LDV plant is in one of the most deprived areas of Birmingham. Many workers will struggle to move on.

All in all, we need a review of how well the administration process works and whether we can learn from procedures elsewhere, such as 'Chapter 11' in the US. The danger is that without such a change, we will continue to lose potentially viable economic activity which might otherwise be saved.

Professor David Bailey works at Coventry University Business School.

Car industry downturn bottoming out?

2009-06-20T22:35:00Z

New figures from the Society of Motor Manufacturers and Traders (SMMT) show that the number of cars assembled in the UK last month fell by 43% year-on-year. Dreadful as these figures sound, these are actually the best figures so far this year, and may suggest that the worst downturn ever seen in the car industry in the UK has bottomed out. We're NOT talking recovery, of course...

The same cannot be said for the commercial vehicle sector; here production fell by a disastrous 73.5%, with firms lacking the credit and confidence to buy vehicles.

Ever since demand fell off a cliff last autumn when the financial system imploded, car producers have rapidly scaled back output as stocks piled up. Part-time working, lay-offs and lengthy plant shut-downs have been the norm in the industry. With assembly plants shut down or on reduced shifts, the knock-on effect has been felt down the supply chain; the number of jobs lost in the industry runs to 30,000+ even excluding the LDV workers.

]]>

Yet the industry seems to be stabilising, albeit at a much reduced level of output than a year ago. After being shut down for several months, Honda is restarting production. Nissan and Mini, both of which have laid off large numbers of workers, have hired a small number of short-term staff to deal with the positive effects of scrappage schemes introduced on the continent and in expectation of a positive impact of the UK scheme.

So far some 60,000 cars have been ordered under the British scheme, which at this rate will run out of cash by the autumn. The real impact of the scheme will appear in June's production and sales figures. Better late than never, of course, but it's a real shame the scheme wasn't introduced much earlier as the Birmingham Post's auto summit suggested months ago. It could have helped manufacturers - and workers - much earlier.

The scrappage scheme will not anyway help the luxury end of the market as it is mainly cars in the A, B and C segments (i.e. cars up to the size of a Vauxhall Astra) which will benefit from the scheme. The government still needs to sort out a support package for JLR to underpin a European Investment Bank loan as soon as possible, and to provide working capital for what is the biggest R&D spender by far in the UK car industry. Its stunning new XJ model with be launched this summer and the firm needs to maintain its high rate of investment in R&D and green technology, including getting an electric luxury car to market by 2011.

Last January the government announced a £2.3 billion support package for the auto industry. Yet, as of last week, not a single penny had actually reached car producers in the UK. This is in stark contrast to action around the world (on the continent, in the US and in Japan). Despite Lord Mandelson's best intentions, there has been a serious failure in government in actually delivering the support that is so vitally needed.

Meanwhile, the commercial sector is still plagued by the double whammy of recession and credit crunch. As SMMT chief exec Paul Everitt noted yesterday, "businesses across the economy are still holding back on new expenditure and will need to see better access to finance and stronger domestic demand."

This is - of course - despite the UK taxpayer having bailed out the British banking system and the Bank of England having injected £125 billion of money this year into the British economy. Last Thursday the Bank of England announced the biggest fall in lending to UK firms for nine years. As Larry Elliott, writing in The Guardian noted, "amid growing fears that a lack of credit will prolong and deepen the recession... finance was harder to obtain and firms face higher fees and wider margins on their bank borrowing".

Whilst the car industry now seems to be bumping along the bottom of a very deep hole, it is indeed far too early to talk of recession. There will be some pick up in activity as the 'Honda effect' (firms like Honda restarting production) kicks in, but there is no guarantee that this will continue into the Autumn, and there remain considerable down-side risks.

Firstly the scrappage scheme stimulus will run out of steam by the Autumn when the £300 million made available by the government will have been used up. As in Germany, the government may then have to look at extending the scheme. The problem is that its fiscal position will probably be even worse than that which Chancellor Darling forecast in his budget, so the government will have limited room for manoeuvre (indeed Britain posted a record public deficit last month of some £20 billion, with receipts down sharply given the recession).

Secondly, it is not clear when the monetary and fiscal stimulus announced by the government last year will actually kick in. There are what economist call "long and variable lags" in monetary policy - in other words if the Bank relaxes the money supply it doesn't really know when this will impact on the economy. If the interest rate cuts and 'quantitative easing' (economics jargon for effectively printing cash) kick in by the Autumn then there could be a manufacturing and auto recovery. If not, we could be in double-dip territory.

Thirdly, until last month the UK had seen a 25%+ depreciation in the value of sterling form its trade weighted peak, which makes the UK a more competitive place to make cars. Once demand in export markets picks up, this should help UK production. But this is now being reversed as the pound has rallied significantly in June. The CBI's monthly snapshot of manufacturing indicated that just 6% of firms polled saw export orders as above normal, and 58% saw them as worse. That minus 52% reading is the worst since 1998. Not good news.

Fourthly, with cars being big ticket items that need to be bought on credit in most cases, a genuine recovery won't be forthcoming until there is both a stabilisation in the housing market and a return to more normal credit conditions.

Longer term, there is still a major risk in the medium term over the fate of GM. The Magna takeover raises the issue of where the job cuts will fall. Magna indicated that it would look for around 9000 job cuts in Europe. The German government has weighed in with several billions of Euros to keep production in Germany, and this leaves Vauxhall workers exposed. Again, Mandelson needs to sort out a support package to keep jobs and capacity in the UK.

It's sign of how desperate things have been that a 43% year-on-year slump is seen as potentially good news. There is hope that things are stabilising, but that doesn't get the government off the hook, whether in supporting JLR, or indeed in the need for a wider package for manufacturing - a part-time wage subsidy would be a good place to start.

Professor David Bailey works at Coventry University Business School and has written widely on globalisation, industrial policy and the auto industry.

The West Brom Building Society - time to go local again...

2009-06-15T08:11:08Z

When the banking crisis entered a new and decisive phase last Autumn and the government bailed out Britain's bust banking system (unlike manufacturing by the way), many of us pointed to the strength of the traditional building society sector both in terms of its mutuality and its aversion to some of the worst excesses of global financial system.

Since then it has become clear that we were only partially correct. The 'traditional' mutual model has indeed held up quite well and the building society sector on the whole has not needed a vast state rescue as has the banking system (partly because mutual societies tend to look after their own).

However, it is now evident that some societies had got into much more risky business activity than many - including myself - had previously realised. The 160 year old West Brom, which has been rescued his week, is another example, after Cheshire and Dunfermline, having racked up losses of almost £50 million last year. The Society has assets of around £10billion, 850 staff, 350,000 customers and 46 branches - mainly here in the Midlands.

]]> Many of us thought it was another risk-averse, safe and respectable mutual society and were happy that Aunty Molly and Uncle Arthur had their savings tucked away there. Yet it now seems it was operating more like an aggressive profit-hungry bank, moving into commercial property lending and the buy-to-let sector.

In so doing, rather than providing a local circuit of capital whereby local savers in effect lent to local people buying local houses, the society started to borrow more and more from the wholesale markets and became part of the globalised financial sausage machine.

And therein lies the problem. The West Brom had neither the expertise to dabble in high risk commercial property loans, nor did it have the resilience required when the wholesale markets dried up after that global financial machine went into reverse. Steady-as-she-goes local lenders were effectively insulated from the global financial mess but the West Brom was in the firing line.

All of this, of course, goes back again to financial deregulation and the fact that banks bought and sold 'assets' they didn't actually understand (derivatives, syndicated debt etc) and some building societies like the West Brom moved too far away from their traditional, low-risk localised roots into high risk markets that they were ill-placed to understand.

To save itself, the West Brom - with the support of the FSA - has had to effectively give creditors an equity stake, swapping some £182 million of debt for capital to underpin its Tier 1 capital and financial strength. In other words, this mutual society will now effectively have shareholders.

Quite how West Brom's members will react to having to hand 25% of the Society's profits over to shareholders has yet to be seen. The West Brom says this anyway will be cheaper than trying to service the debts it has racked up.

Not all building societies got the profit bug, and those that stuck to their core (local) mainstream mortgage business and took fewer risks are now better placed to get through the current turmoil.

Mutuals like the building societies are also meant to offer the choice of a different model for savers and investors; whether in terms of socities' mutuality, in avoiding the worst excesses of financial risk taking, or in providing local circuits of capital for savers and borrowers. The latter also provides a buffer against financial contagion in the event of a global financial shock.

The West Brom now promises a 'back to basics' strategy drawing on its local roots. That is not only sensible but also necessary, and perhaps should be part of the necesssary re-regulation of the financial system so that such excessive risk-taking can be avoided by the sector.

A final point. Not all societies got into such troubles. Somer were much better run than others, raising issues of corporate - or in this case mutual - governance, that need to be examined. Do annual elections to the Society board actually work well in appointing strong Non-Executive Directors who can stand up to Execs who might want to go down a high-risk-high-return route? Does Building Society mutual democracy still work, and what is its role going forward?

Afterall, the debt-for-equity swap may have saved the independence of the society for now, but comes at the expense of members. The latter have had no say on the deal, which has been imposed on members without them having a vote; where does that leave mutuality?

Professor David Bailey works at Coventry University Business School.

The West Brom - time to go local again, after its unfortunate foray into high risk lending and globalised wholesale borrowing...

2009-06-14T16:07:16Z

Not all building societies got the profit bug, and those that stuck to their core (local) mainstream mortgage business and took fewer risks are now better placed to get through the current turmoil.

Mutuals like the building societies are also meant to offer the choice of a different model for savers and investors, in terms of their mutuality, in avoiding the worst excesses of financial risk taking, and in providing local circuits of capital for savers and borrowers. The latter provides a buffer against financial contagion in the event of a global financial shock.

The West Brom now promises a 'back to basics' strategy drawing on its local roots. That is not only sensible but also necessary, and perhaps should be part of the re-regulation of the financial system so that such excessive risk-taking can be avoided by the sector.

Afterall, the debt-for-equity swap may have saved the independence of the society but comes at the expense of members. The latter have had no say on the deal, which has been imposed on members without them having a vote; where does that leave mutuality?

Professor David Bailey works at Coventry University Business School.

GM fire-sale of brands goes on: Saab deal close

2009-06-12T21:56:50Z

The US firm GM (recently renamed 'Government Motors' by some) is closing in on a deal to off load Saab, having already got shot of Hummer and Saturn, as it races to complete a restructuring whilst under Chapter 11 protection.

Swedish broadcaster SVT has reported that the Swedish luxury super car firm Koenigsegg was planning to buy Saab along with Norwegian investors.

Saab entered 'creditor protection' (a Swedish version of Chapter 11) back in February as GM sought to sell off the loss making brand, and the Swedish firm is trying to cut debts by 75% during this process. Saab confirmed last month that three bidders were interested in Saab and that they expected to complete the sale by the end of June.

]]> Meanwhile, Sweden's government said it has asked the Swedish National Debt Office to start talks with Saab on loan guarantees - Saab is looking to the European Investment Bank (EIB) for support.

Koenigsegg is a privately owned company, based near Malmo, employing just 45 full-time workers, and sold just 18 cars last year. It is thought that the firm is interested in applying its niche model knowledge to a higher-volume carmaker.

Indicative of the mess that GM has got itself into, GM is having to pay Koenigsegg to take Saab off its hands, with rumours of some $500m of assets and cash being handed over. This is thought to include production tooling for the new version of its 9-5 model to be unveiled later this year, as well some $150m in cash.

GM's foray into the premium market through Saab has been nothing short of a disaster. It has failed to make a cent in profit on Saab, and the extension of bland GM platforms to Saab models is viewed as having diluted the Saab brand over the last 19 years of GM stewardship.

Saab is in fact a minnow in global auto terms. Its sales peaked at 133,000 in 2006 and fell to just 98,000 last year - a smaller number than MG Rover made in its final year of life. Phoenix bought Rover another five years of life when BMW off-loaded it in 2000 with a £500 million dowry. Let's hope Saab lasts a bit longer...

Koenigsegg senses an opportunity to get its hands on a tarnished yet still valuable brand at a knock-down price, along with cash and investment from GM as well as government support. Any deal will also need agreements on technology, licensing, manufacturing and engines with its current parent GM, on which Saab is dependent at present.

If the deal goes ahead, the big questions are (which faced MG Rover a few years ago):
1. how many jobs will be lost in the short-term (given both the downturn and Saab's weaknesses, job cuts seem inevtiable).
2. whether Koenigsegg can find the cash to develop new models in the medium term (getting a new car to market is hugely expensive)
3. whether it can find partners to develop new technologies and models.

So far is has been a successful but ultra-niche producer of expensive super-cars. It is now trying to move into the mass market. That is not an easy market to make money in at the best of times given over-capacity, let alone in the current downturn. Let's hope the apparent parallels with MG Rover are wide of the mark.

Rolls Royce still rolling despite the downturn?

2009-06-11T09:24:31Z

Comments earlier this week by Tom Purves (see here), the boss of the luxury car firm Rolls-Royce, were interesting on a number of fronts...

Despite the global economic downturn, RR has received 1,500 'serious expressions of interest' in the new Ghost model which is set to be unveiled in September and launched next year. The Ghost model has generated much interest after a prototype has toured the globe. If these expressions of interest were translated into sales they could effectively double RR's annual sales.

It seems that firms - luxury brands included - can (and must) innovate and develop new products for new markets (witness the splendid Jaguar XF as well). In this sense, the new Ghost is critical for RR in extending its product range and moving into new markets. The model will especially aim at a lower price category and hence potential customers who would potentially go for a Bentley Continental Flying Spur instead.

The model could also appeal to the growing numbers of rich people in emerging markets such as Russia and China, even if 'mature' western markets move away from ostentatious displays of wealth, as some seem to suggest will happen post credit-crunch.

]]> RR sold record numbers of cars in 2008 (some 1200 of its Phantom model) but sales have this year been down given the recession. Sales in the year to May have been down by 28%, very much in line with the market as a whole. Yet that in itself is no mean feat for a luxury brand which you'd expect to be especially sensitive to cyclical conditions.

Apparently the luxury market is often late going into recession and late coming out. Or maybe if you're rich enough to afford a Roller, you're rich enough to afford a Roller, whatever the state of the economy...

The firm is still - it seems - delivering a profit to its German parent BMW (which by the way is currently loss making, like many of the world's auto firms). RR should be a prized asset for the parent company.

Of particular interest, for RR at least the economy has bottomed out: "We are bumping along the bottom ... I do not see things getting any worse" said RR's boss. If accurate this will be welcome news to many in an auto industry which has been hammered by the double whammy of recession and credit crunch.

What has been especially impressive about Rolls Royce is that it has worked hard to keep skilled craftsmen in place through the recession. Whilst the firm has laid off agency staff, it has kept its skilled workforce in place: "we know we need them with the Ghost coming, and also because we know they are highly skilled and highly qualified and it is much better for us to retain them than not" said Purves a few months ago.

If only more manufacturers in the UK had been able to do this - of course a part-time wage subsidy for the mass manufacturers could help on this front.

It's true that much of the engineering underpinning RR cars now comes from outside the UK. Engines come from BMW, and many parts are sourced from Continental Europe. In so doing, the Ghost shares elements of the platform which underpins the BMW 7 series, and enables BMW to achieve some economies of scope across brands through platform sharing.

Nevertheless, the assembly, leather work, wood work, and finishing is completed at RR's Goodwood factory in Sussex. Over 150 new jobs have been created there in connection with the Ghost launch. By the end of this year, the total Goodwood workforce will have risen to 900, some 400 up on two years ago.

When the upswing does finally come, RR will be in a better place because of its investment and long-term thinking.

Professor David Bailey works at Coventry University Business School

Our Vanishing Van industry... Do we want to make vans in the UK? If so, the government needs to do something now, starting with LDV.

2009-06-05T11:48:01Z

Whilst the UK has seen its production of heavy end commercial vehicles run down in recent years, light commercial vehicles are still made in the UK in significant numbers.

Yet that could well change over the next three years unless the UK government steps in, as the seismic changes that have unfolded in the world's auto markets threaten to wipe out mass van production in the UK, leaving only very small niche producers.

At the moment there are three main producers - Ford at Southampton, GM/Renault's joint venture at Luton, and LDV here in Birmingham. The latter has been in suspended animation since December when production was largely stopped as the double whammy of credit crunch and recession impacted.

If current trends continue, all three could effectively have gone by 2012, with all main van demand then having to be met by imports, and with jobs and capacity lost forever.

The key question for the UK government is: does it want a van industry in the UK? If so, it needs to step in with an industrial policy that can make that happen. LDV is a good place to start.

]]> Ford makes engines in the UK but its only UK assembly plant - after it pulled car production out of the UK - is its transit van plant in Swaythling (Southampton). Ford has laid off staff at Southampton and most analysts see the plant winding down.

Indeed, Ford itself has indicated that they only plan to continue making the Transit panel van at the Swaythling plant until 2011; after that the site will make only the chassis cab version of the model. By 2011, production will be halved to 35,000 units a year. Volumes beyond 2011 are uncertain and are likely to be limited.

Meanwhile, Ford has invested heavily in Transit van production abroad. In effect, Ford is shifting mass production of the "backbone of Britain" (Ford's phrase for the van) to Turkey, with the loss of jobs in the UK.

GM's upheavals in the US have led to its European arm being potentially spun off to the Canadian supplier Magna, with backing from Russia via a government-owned bank and Gaz. The German government is providing almost €5 billion in short term financing and loan guarantees to effectively safeguard production in Germany.

Given that Magna openly discussed cutting some 9000 jobs in Europe, this leaves Vauxhall vulnerable as it is easier and cheaper to lay off UK workers. Current van is scheduled to run to 2012. After that, Luton faces an uncertain future as Magna wants to expand into the Russian market and Gaz has capacity there to produce GM vans.

This brings us back to LDV.

Having offered a critical £5 million bridging loan to enable the Malaysian firm Westar to complete a takeover of LDV, BERR pulled the plug last week when it became clear that Westar had been unable to raise external finance to complement its own internal resources.

That is a curious logic. Even the likes of Tata, a huge conglomerate, have struggled to raise finance on the markets because of the global credit crunch. It seems that the government won't intervene because the market won't provide the finance - of course if the market did provide the finance the government wouldn't need to intervene in the first place.

Without the Westar takeover, LDV will go into administration on Monday. This heightens the risk of another 'lift and shift' of the operation and all the R&D out to an emerging economy like India, Russia or China, and the end of van production here in Birmingham, plus a knock on effect on suppliers who may well pull out of the UK as well.

There are a number of things the government could do in this situation.

It could take an equity stake in LDV (if Obama can nationalise GM, why can't Brown think about equity stakes in UK firms?). If it were to take an equity stake with Westar or another investor, it would also have a say in keeping production in the UK.

Similarly, other stakeholders could be brought in to take stakes alongside the government. LDV's major customer, Royal Mail, might take a stake, and secure the supply of electric vans. Birmingham City Council might do the same. Such government backing could then bring in private investors including Westar.

Alternatively, the government could provide a loan guarantee to Westar for the investment.

The latter option - providing a loan guarantee for Westar to access the finance - would be the least risky and speediest option given where LDV is right now. Such interventions have been seen elsewhere and there is a case to be made for intervention here.

Of course, either of these approaches would require a change in policy by the government.

Yet in recent months, BERR has repeated the point that LDV hasn't made a profit in several years.

This rather misses the key fact that over the last few years some £600m has been invested in the award winning Maxus van range which could provide an ideal platform for the proposed switch into environmentally friendly green electric vans. The latter is a rapidly growing market especially in the depot-to-depot market in urban areas.

Overseas this has been supported by tax breaks - something the government here could do to help LDV and Modec in Coventry. The electric Maxus is already developed and ready to roll, and LDV owns the intellectual property rights to the electric version.

As battery life improves and the recharging infrastructure in urban areas develops, this market will grow. LDV could be at the forefront of the proposed 'green new deal'.
Put simply, there is a new market unfolding here, and LDV are effectively saying to the government: "put your money where your mouth is" when you talk about a low carbon future.

In support of LDV, a number of other points need stressing.

1. The depreciation of sterling improves LDV's position regarding export markets.

2. The firm is self-contained, owing the intellectual property rights and production facilities for the Maxus van in diesel and electric form - unlike GM and Ford operations in the UK where stratgeic decisions are made elsewhere.

3. BERR keeps referring to the government's obligation to the taxpayer. That's absolutely right, but they need to be doing their sums properly in weighing this up. LDV contributed around £7 million in 2008 (not exactly a great year) in PAYE and National Insurance to the government coffers. You could treble that by adding in the supply chain and dealer network.

Some of those firms and people might get other jobs and hence still pay NI and PAYE if LDV does close, but even a conservative estimate suggests that the government picks up a useful £15+ million a year from LDV's operations. Add in £50+ million in purchasing and £50+ million in exports and you can start to see the value of LDV to the economy and the government.

4. We know from our research on the collapse of MG Rover that quality jobs matter and that three years on workers were earning £5600 a year less in real terms than when they were at MG Rover. The Rover Task Force cost the government £150 million in picking up the pieces. And in this case, the LDV plant is in one of the most deprived areas of Birmingham. Many workers will struggle to move on, especially in the current downturn.

5. The government might be concerned that Westar would shift production overseas. In that case the loan guarantee could be converted to an equity stake with a golden share that would prevent this happening.

6. LDV management state that they have restructured and have cut costs and have brought down the output level where it can break even. The government needs to scrutinise this and if LDV's costs can be covered at around 10,000 units this remains a viable firm worth backing.

As I've said in earlier blogs, it's time for BERR to think out-of-the-box, both in terms of where the market is going, and how LDV - and indeed the UK van industry - can get there.

It would be a tragedy if thousands of workers are let down because the government is at this very moment too inward looking - given its resignations and reshuffles - to focus on efforts to restructure and help what can be a successful firm in the future.

To borrow a phrase from someone on the other side of the Atlantic who just nationalised GM, 'yes we can'.

End of the road, or an electric future?

1993 LDV's parent, Leyland DAF goes bankrupt. Managers buy out LDV for £8m with backing from venture capitalists 3i.
2000 Daewoo, LDV's South Korean partner, goes bankrupt, delaying launch of its new van range, the Maxus.
2001 Volkswagen in discussion on a 50 per cent stake, but talks stall.
2004 Maxus van launched to critical acclaim, winning the Professional Van and Light Truck Magazine "Van of the Year 2005" and awards since, including "Van of the Year", "Minibus of the Year" and "Combi of the Year".
2005 Sun Capital Partners, a US investor, buys LDV out of a pre-pack administration. 3i sell out their stake.
2006 GAZ, the Russian automotive group, buys LDV from Sun Capital
December 2008 LDV suspends production as the double whammy of recession and credit crunch bite
February 2009 MBO team asks the government for a loan of £20m to £30m to restart production
March 2009 Loan request cut to 4-5 million as GAZ say there is no more cash but LDV talks to possible foreign investors. Westar emerges as possible buyer...
May 2009 LDV avoids administration after Westar emerges as a potential buyer. A government bridging loan buys time for due diligence to be completed.
June 2009 Government loan stopped after Westar is unable to find financial support. LDV applies for administration.

Professor David Bailey works at Coventry University Business School.

GM goes bankrupt... but will be back, nationalised.

2009-05-31T22:40:42Z

In one of America's largest ever bankruptcies, GM is expected to declare itself bankrupt tomorrow, in an attempt to seek protection from creditors after stacking up over $80bn of losses in the last 4 years.

The firm has also swallowed some $20 billion in cash from the Obama administration and is likely to need another $30 billion before emerging from Chapter 11 substantially slimmed down, and free of debts. During Chapter 11, the firm will continue to function and assemble cars, and a judge will make the decisions on who gets what assets.

Whilst the old saying that 'whatever's good for GM is good for the US economy' may no longer be true (if it ever was) and GM is no longer the biggest car maker in the world, by some estimates it still accounts for 1% of the US economy. The bankruptcy then is not only hugely symbolic of the fate of the US car industry, but matters profoundly for the workers, suppliers, dealers and creditors caught up in its travails.

]]> Whilst Republicans have started to attack Obama over the money spent so far in supporting GM, it is difficult to see what else the US President could have done. He needed to give GM time to come up with a credible plan, and many analysts - me included - always thought that the firm would need $40 to $50 billion of government support alongside substantial restructuring to get through the downturn.

A bankruptcy judge will decide on whether the proposed carve-up between the government, workers and bondholders will go ahead. Under the plan, the US government could get a stake of 70% in the company in return for another $30bn of state cash, with the United Auto Workers union getting 17.5% initially, the latter taking shares instead of the cash owed by GM for retired employees' healthcare cover.

A majority of GM's bondholders have finally accepted an offer to swap their $27bn in debt for an initial stake of 10%, with the option of buying another 15% stake later. That they have agreed to this should speed GM's progress through Chapter 11 and avoid messy and expensive legal battles. Whilst a small group of bondholders (called 'GM Bondholders Unite') are holding out for a better deal, a realistic assessment is that this restructuring is the only game in town.

If all goes to plan, the 'New GM' that emerges from Chapter 11 will be leaner and fitter and free of debts. It will include the firm's best models and R&D and will off-load brands like Pontiac, Hummer and Saturn. By 2012 what will be left will be Chevvy, Cadillac and Buick, plus its GMC truck brand. Its forthcoming electric Chevvy Volt car will be part of the new firm.

'GM-Lite' will cut the number of assembly sites across North America, including Canada, to 33 by 2012, down from 47 at the end of 2008. Eventually the goal is to refloat the firm on the NY Stock Exchange, and shed some 20,000+ workers in the US. It has also told over a thousand dealers in the US that they are risk of losing their franchises - indeed GM plans to cull 2,300 from its 6,000-odd dealer network.

In a deal last week with the UAW which will save the firm $1 billion a year, rules on breaks, vacation and overtime have been changed, retiree benefits have been cut, and the UAW has agreed not to strike until September 2015 at the earliest.

GM will never be the biggest manufacturer again, but Chapter 11 is anyway about restructuring the firm, erasing the debts, cutting costs and reorientating the firm towards more environmentally friendly cars.

A viable car company may yet emerge from the ashes of the old GM, thanks to an interventionist US government which is investing heavily in new green technologies.

Take note, please, Mr Brown, of how far Obama has intervened. The same could be said for the German and Russian governments this weekend given the deal to sell GM Europe to Magna, backed by Russian cash and German loan guarantees.

Professor David Bailey works at Coventry University Business School.