What Went Wrong?
The P76 has often been called the car that killed Leyland Australia, and it seems everyone has an opinion on what went wrong.
Peter North was one person who was intimately involved at the time. From a rare interview, supplemented by notes from his speech to the BMC Leyland Australia Heritage Group in 2002, he gives a rare insight into the whole saga of the closure of the Zetland/Waterloo plant.
Peter North has a background that made him the ideal choice to take over Leyland Australia at a time when it was fi nancially strapped, but had big plans for the future.
His family had been importers of British motorcycles after the war, and saw the collapse of the British motorcycle industry. “Motorcycles like the BSA, Matchless, Triumph, Norton, and so-on, were dominating the World market”, he recalled. “But if you look at the designs you fi nd that they inherently pre-dated World War Two. British technology was about as updated as a packet of peanuts, and then along came Honda. If you trace the history of the British motorcycle industry after the War, and then you transpose in time by about a decade or so, to the car industry, there are a lot of parallels.”
Born and bred in Sydney, Peter became an engineer, with a Masters Degree in Business Administration at Harvard University, before joining the Ford Motor Co. “I joined Ford in Canada straight from business school, and I was part of a team that worked on either getting Ford Canada working profi tably, or close it.”
He was involved in developing the North American Automotive Free Trade agreement, and in 1963 became the director of the implementation programme for the plan, under Ford Canada’s Finance Director, Wally Booth.
Having been instrumental in saving Ford Canada, Booth was sent to take over Ford Australia, with basically the same brief. He seconded Peter to come to Australia to work in Product Planning at the end of 1963. “The Falcon (launched in Australia in 1960) was essentially a disaster in Australia. The 1966 XR Falcon was all new, and while we were working on that, we developed the Fairmont and Fairlane model versions of the basic Falcon investment. That was not just a product plan, but it was also aimed at dealing with the fundamental problems of manufacturing cars profi tably in Australia.”
In 1966 Peter became General Marketing Manager for the launch of the XR Falcon range, at only 32 years of age.
He then moved, in 1968, to McKinsey – the World’s leading management and consulting fi rm of the day – and worked in areas of banking, mining and tourism.
In a very early example of executive headhunting, Peter was approached in 1971 by Spencer Stuart for British Leyland’s Finance Director, John Barber, to take over as BL Australia’s Finance Director, under then MD John Martin. “What they wanted was my background in marketing and fi nance. They needed someone who could not only do the financial side of things, because the place was in a mess fi nancially, but also to work on the dealer side of things, because the one thing they didn’t have was a sales or dealer organisation that was worth anything. What they had was the remnant of the old BMC days, which was in disrepair.”
Peter recalls there was a fair bit of turmoil in the parent company at the time. “BMC UK suffered from the confl icts between the differing Austin and Morris corporate cultures, abundant layers of management, fragmented manufacturing facilities, and enormous manufacturing cost problems. Most of all, BMC’s leadership seemed to think that come what may, British automotive engineering should and would prevail.”
“The BMC UK reality was that despite its incredible marketplace success, BMC’s frontwheel- drive technology – particularly in the form of the world-famous Mini – had never achieved the fi nancial success essential to fund the company’s future product development and manufacturing rationalisation.”
Leyland, on the other hand, was seen as a success story, and was eagerly supported by British Government in its merger with BMC. However, as Peter points out, the reality wasn’t quite so rosy. “The Leyland reality was that its worldwide cash fl ow was being produced by ‘milking the cash cow’ – ageing products heavily marketed on past reputation, strong sales and pricing of replacement parts to a large base of past customers, and limited expenditure on engineering future products.”
“The fortunes of the UK Truck and Bus Division were starting to decline. The money had not been spent on new products for Truck and Bus, and most of the designs were 20 years old. Sales started to go down, and costs went up. So, it’s true that the Truck and Bus division was at fi rst an important part of the company, but eventually it had its own problems and those problems had contributed to the overall downturn in the BLMC group worldwide.”
“In Australia, profi ts from Truck and Bus, and Spare Parts, were propping up the car division. Truck and Bus, and Parts were under very competent management. Truck and Bus was under Bob Johnston and John Conomos – Bob went to Toyota as MD and later Chairman, and John followed him in both those roles. Parts was under Vic Drew, a long-time BMC parts executive. Both these areas, and Exports, later came under Robin Jones, a long-time stalwart of BMC International. They were remarkable people.”
This then was the state of the company when Peter arrived at Waterloo in 1971, but the situation was made even worse by the large number of cars sitting idle at the factory. “It was astonishing – there were cars everywhere. Many were more than six months old and deteriorating rapidly. The accountants explained to me, with completely straight faces, that the cars had been produced to absorb the overheads allocated to each unit.”
“This old accountant’s trick for deferring the truth about operating losses resulted in overproduction, inventory write-offs, added costs of car restoration, and further costs in moving them through the dealers – all of which seriously drained BLMCA’s cash reserves.”
“Warranty costs were also enormous on these cars – far higher than I had ever seen before – so that after restoration, sales incentives and warranty, virtually all of these cars ended up being sold below variable cost. If you buy peanuts for fi ve cents a packet and sell them for four cents, volume doesn’t help much.”
The majority of the cars ‘at grass’ were Austin 1800, Morris 1500 and Tasman/Kimberley models. One contemporary account put the cost of those vehicles ‘at grass’ at around $1 million per month.
The Mini, and Land Rover (Land Rover being assembled at the Enfield plant) were selling in good numbers, but at little profit.
Peter calls this the “profitless prosperity” of the company “Mini wasn’t a problem in terms of selling. Mini was a problem in terms of making money. Fundamentally, the car was too expensive to make, for what you got. If you wanted to have a car like that, then have it as a car that had been positioned as a premium car like its successors are today, the benefi ts of which – its peculiarities, compactness, etc – control the price. Whereas, BMC had positioned it as a cheap car – it is small, therefore it is cheap.”
“In my opinion”, he continues, “you couldn’t make a success of any car that was that inherently costly, no matter what model version you made. The design was simply not appropriate for the size of the car, if that’s the price you wanted to sell it at.”
Peter explained that the Moke was a very different proposition, partly because of the successful export market. “Moke was quite a different thing entirely. It was a much less expensive car to make, for the price you got for it, even though it still had all of the Mini’s idiosyncrasies in terms of the power-train and transmission, but it was a much less expensive car relative to its selling price.”
“We recruited John Kay, who was then the Director of Sales and Marketing at Fiat in North America, and John and I set about getting rid of the unsold cars covering almost every inch of the Waterloo plant’s 57 acres.”
If you would like to read the rest of this story, order your copy of Issue 16 of The Mini Experience. <plumshop>22</plumshop>