Sanjoy Sen is a chemical engineer in North Sea oil and was the Scottish Conservative & Unionist candidate in Aberdeen North at the 2015 UK general election.
Back in September, I looked back on 30 years of Nissan in Sunderland. Despite subsequent intrigue over post-Brexit investment (and government support), the Washington plant remains a huge success and the Japanese are staying. By contrast, 31st January marks a more tumultuous anniversary for another Asian giant. It’s now ten years since India’s Tata agreed to acquire British Steel (strictly speaking, Corus) with its Jaguar-Land Rover (JLR) takeover following in 2008.
This might be an opportune moment to review how these businesses have fared, both pre- and post-Tata acquisition. Common themes abound: British outfits resurgent (but caught up in fast-consolidating sectors), major foreign investment (but over-payment and market mis-judgment) and long-term aspirations (but parent-company woes). So, if ownership and market stability cannot be guaranteed, are there any pointers for industrial strategy? And, in turn, where might industry’s responsibilities lie?
The trickiest one of all has to be steel.
Passing its vast ‘Buy British’ signage daily whilst on an invaluable student placement, it felt unthinkable that British Steel might ever come under foreign ownership. But, whilst post-privatisation restructuring had made it a leaner operator, competitor mergers prompted its own tie-up with Holland’s Hoogovens, creating Corus. And, paying over the odds (£6.2 billion) following a bidding war, Tata’s takeover created a top-ten player in a sector soon to be swamped by Chinese over-capacity.
Attracted by high prices ($1000/tonne then versus today’s $300), Tata invested further whilst focussing on bulk products and bulk customers. Sadly, a mega-contract cancellation in 2009 exposed this strategy, forcing the mothballing of Teesside operations. Even a giveaway to Thailand’s SSI (just £291 million) was to no avail: Redcar’s giant blast furnace fell cold in 2015. And, despite restructuring following years of losses impacting the struggling Tata group, all options remain open. Scunthorpe went to private equity whilst the remainder (including Port Talbot) could see a merger with Germany’s ThyssenKrupp.
What to expect from government? Industry’s main demands understandably include protection from crippling Chinese dumping and sensible energy costs. Additionally, post-Brexit, mega-projects (Hinkley Point C, HS2) might be encouraged to buy British. Doing so requires careful consideration, though: global experience in other sectors, including oil, warns that over-stringent local content stipulations can impact quality and costs whilst choking growth.
Meanwhile, Italy’s woes with the vast, toxic Taranto steelworks (Europe’s largest, which is located in a southern unemployment blackspot) exemplify the challenges of last-ditch government intervention. But where an entire community depends upon one industry, shouldn’t responsible strategy envisage reduced employment or even closure? (Swotting up for my 1994 interview, I recall British Steel output rising year-on-year despite its workforce plummeting.) Trends in efficiency and technology aren’t entirely unpredictable yet it’s hard to think of a downturn that didn’t come as a shock or a former steel town which made a painless transition. And wherever there’s post-industrial malaise, UKIP or the SNP are capitalising.
But for government support to be beneficial, effective long-term stewardship by industry is key. This might include identifying new markets via higher-value speciality products and, where appropriate, more flexible, electric-arc production from scrap. Loss of steelmaking has ramifications for the entire supply chain and, in extreme situations, for national security.
What, then, of Jaguar and Land-Rover?
Jaguar’s time within the British Leyland empire was an unhappy one. But the investment and know-how to update its ageing facilities and product range wouldn’t easily be found independently; chairman Sir John Egan lamented another tie-up couldn’t have been secured upon privatisation in 1984. Nissan were rumoured to be keen but instead Ford, eyeing the luxury market, stepped in for £1.8 billion in 1989.
Having vastly exceeding rival GM’s valuation, the Blue Oval then ploughed in fortunes over two decades for little reward. Sharing Ford hardware tarnished exclusivity whilst all-new models styled as sixties pastiches struggled against futuristic, German cool. (Paradoxically, of course, younger ‘supermini’ buyers flock to retro-themed MINIs and Fiats.)
Meanwhile, the Rover Group (including Land Rover) was resurgent. With prosperous BMW viewing expansion essential for survival, Anglophile chairman Bernd Pischetsrieder skipped the due diligence and dived in. Stripping out the Mini brand and tapping Land-Rover expertise eventually paid off handsomely for the Germans but Rover itself proved a stumbling block; re-inventing itself along BMW lines since the mid-80s meant more overlap than synergy.
Like Ford, BMW invested heavily but, again, struggled having marketed Britishness as a historical artefact. (One critic unhelpfully panned the ‘last-chance saloon’ Rover 75 as the only model ever named after its target age-group.) With group losses mounting, Land-Rover went to Ford in 2000.
In retrospect, the government golden share might have shielded Rover until a more compatible partner emerged. Honda already held 20 per cent but perhaps needed encouragement to commit further. Looking back, this feels like a missed opportunity all-round; unlike Nissan, Honda’s European exports remain dismal, leaving its Swindon plant operating at half-capacity.
With the 2008 financial crisis forcing a Ford fire sale, Tata grabbed JLR for a knock-down £1.15 billion. It’s since roared back in to profit with a much-improved product line although vulnerabilities do remain including an over-dependence on Chinese sales. And green legislators always have 4x4s in their sights.
So, what might an automotive industrial strategy look to achieve? Rather than reactively bailing-out failing multi-nationals, it could focus directly on supporting British businesses and jobs. Meeting Tata’s recent demands (an upgrade in Midlands infrastructure) might be dependent upon JLR’s commitment to the region and upon creating opportunities for other potential area investors. In return, good industry stewardship might involve developing the brand into hybrids and (ultimately driverless) all-electric models.
Future management textbooks may consider including a dedicated Tata chapter: how to rationalise overpaying for a commodity business with revitalising a bargain prestige brand? (If ever a company needed an industrial strategy, this was it.) Cyrus Mistry, the company’s chairman, recently paid the price for failing to reform an under-performing, byzantine portfolio. What this means for its UK operations remains uncertain but here’s hoping for a quieter second decade and a supportive industrial strategy.