Serious Times Ahead For British Industry

Press, Volume XCIX, Issue 29389, 16 December 1960, Page 15

Serious Times Ahead For British Industry

r T''HE most striking feature of the British export performance is the extent to which it has been concentrated in North America, which until the recent setback, was taking more than half of total export sales, according to the economic correspondent of the “Financial Times.” No other major producing country in Western Europe has been as dependent on this particular market The total United States demand for cars is not far from saturation point. Although domestic production is running at a higher rate than a year ago, it is more than one million below the 1955 level when nearly eight million cars were produced. The peak reached in that almost freakish boom year has never been approached since then.

British manufacturers were able to secure their rapid expansion in a static market by concentrating on a range of smaller models where American manufacturers were deficient. With the coming of the “compacts” this gap has been largely plugged. (Indeed one British car executive who has driven both his own product and an equivalent United States compact told me he had no doubt that the American model gave better value for money.)

Part of the present glut of British cars in the United States is. it is true, due to the overstocked position of individual dealers, many of whom will not hear of any more deliveries for some time to come. Once the stock position has sorted itself out British car sales may start gently climbing back; but it will require a great deal of effort and time to touch the 1959 rate of exports to North America, let alone to exceed it. Canadian Market

Nor does consideration of the Canadian market, where conditions have a certain similarity to the United States (and where new duty valuations have added 150 to 180 dollars to the price of some British models) do more than brighten the picture faintly. Any major expansion of United Kingdom car exports will have to be sought outside North America.

Unfortunately the long-term growth of exports to non-dollar countries has been far from impressive; the average annual rate of growth since 1954 works out at only 2J per cent. The really large and rapidlygrowing market, on which United Kingdom car exports will depend in the 1960’5, is in Western Europe. The omens for the market here are none too good. In the five years up to the end of 1959 total Continental imports rose by over 75 per cent. During this period of rapid expansion the number of British cars Sold on the Continent actually fell, while the United Kingdom share of the market dropped from 29 to 16 per cent.

It is difficult to find much to praise in the British sales drive in Europe. The reasons given for the poor performance include the failure to build up an adequate network of distributors, poor servicing facilities, conservative design, insufficient and unaggressive salesmanship, not enough promotional expenditure and, in some cases, uncompetitive prices. The export director of one large British motor concern admitted that British prices tend to be 5-7 per cent, higher than that of Contintal equivalents—and this is hardly likely to be an understatement. Other defects mentioned are uneconomic petrol consumption (bearing in mind heavy petrol

taxes in countries such as Italy and France) and poor road-hold-ing qualities. As one market analyst succinctly put it, “the British brand image is unbelievably bad.” If this forecast is accepted, and considered together with the estimates of home demand, it looks as if there will be excess capacity of very roughly 600,000 cars a year—or around 30 per cent, on the basis of present expansion plans.

The position of a motor firm working at only 70 per cent, of its original capacity need not, however, be taken too tragically. Contrary to popular opinion, output can fluctuate over quite a wide range with only a small effect on unit costs. Of course, machinery and development charges are very costly, but they are spread over such a large volume of output that they do not amount to very much for each car produced. It has in fact been argued that production can range from 60 per cent, of theoretical capacity to 120 per cent, without increasing or decreasing total costs by more than 5 per cent, of standard levels. Such variations can eat into profit margins, but are hardly disastrous. Volatile Industry

There are, however, two snags to be faced. The first is that quite apart from Government restrictions, the motor industry is naturally a very volatile one. Therefore, even if it is working in the mid-60’s at an average of 70 or even 75 per cent, of capacity, in particular years, the level of operation • will be considerably less.

Secondly, and even more important, there is no reason to think that the available work will be shared out proportion ately between the companies; .if the average level is 70 per cent, it can be taken for granted that some firms will be working below this level.

A theoretical solution might be found if some companies were voluntarily to curtail their plans. But the question most often raised in the industry itself is what chances of survival the smaller companies outside the Big Three now possess, and one of the favourite subjects of discussion is which one will be the first to go under.