Investment Markets » Industrials
Is There Hope For The British Car Industry?
Ford's plan to offload Land Rover and Jaguar has got the unions agitated. A showdown may be imminent.
Jaguar is the preferred mode of transport for Britain's political and financial elite, and Land Rover provides the nation's aristocratic set with wheels. Yet these two world-famous marques have been poor performers for their cash-strapped owner Ford, which is now inviting potential buyers to kick the wheels.
Financially, they're not a pretty sight. Jaguar has been a sinkhole ever since Ford paid $2.5bn for it in 1989. Land Rover is the shinier asset, but it's estimated $2.7bn value is still pretty lousy, given Ford stumped up $3bn for it seven years ago. It looks as though Ford will have to settle for a less than luxurious price for both.
Given the industry's appalling record, it's easy to see why foreign buyers may be leery of jumping in: BMW's acquisition of Rover nearly destroyed the German car company; Daimler's merger with Chrysler was a disaster of even greater proportions. Indeed, it's hard to think of a cross-border deal that has actually worked.
There may be some interest from Asian manufacturers in search of trophy assets, but attention is already focusing on private equity. Ford's plans were barely off the drawing board before the "buyout bogeyman" crashed into the debate, with union leaders calling on the Government to protect the companies from the "asset-strippers".
Ministers should resist the temptation. Past attempts to influence such deals have invariably backfired; moreover, private equity may yet prove the best solution for Land Rover and Jaguar.
Had MG Rover been acquired by Alchemy – the private equity consortium vilified by the unions and rejected by the Government in 2000 – it might well have escaped being run into the ground.
Yet, with 15,000 jobs in the balance, the political stakes are high. Labour survived the crash of Rover before the 2005 election; voters will be less forgiving if either Jaguar or Land Rover collapses ahead of the next.
Yet the bigger question is whether car-making can survive at all in the UK, given the growing dominance of low-cost manufacturers such as China. With even the mighty Americans on the run, what hope is there for Britain? The answer may lie in BMW's Cowley plant, home of the rejuvenated Mini, a premium product built by a dedicated workforce.
The gap between success and failure is very narrow in the motor trade, but Britain can still punch above its weight. There is no reason why Jaguar and Land Rover cannot thrive – they just need good owners, some money and some tough love.
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