Will Leyland pass its five-year test?

THE OBSERVER
With rumours rife and the shares flat on their backs, ROGER EGLIN looks at Britain's troubled car giant.

No flags flew last week over British Leyland's Berkeley Square command post to celebrate Lord Stokes second anniversary as chief executive of Britain's biggest car manufacturer. The lack of fuss is scarcely surprising. B.L.M.C shares, 12s 9d on the day Stokes became chief executive are now down to a miserable 7s 10d.

Even when BMC was losing £3 million a year the shares never fell below 9s 9d. Rumours about the groups state of health abound. Many now have doubts about Stokes ability to knock the company into shape. Even from true blue Tories there is glum talk that it may be another Cammell Laird.

The most immediate worries centre on BLMC's half-yearly results due within a few days. There is no doubt that they will be grim. Earlier this year Stokes himself laid it on the the line when he said that the group wasn't making money in the first four months of the half-year. Profitability improved in the final two months but for a company with 196,000 employees and a turnover of nearly £1000 million, the figures will be derisory.

When Stokes and his men moved in to the ailing BMC, they set themselves a five year time scale. Now the real worry is whether with two years gone, the group is moving in the right direction and fast enough. First, it's as well to remember a few facts in the middle of all the gloom in the Austin 1100-1300 range, British Leyland has the best selling car on the British market although adding in exports, Ford make more Cortinas and in recent months the market share of the range has been moving slightly upwards.

In the first four months of this year, exports to America were an all-time record. No one doubts the company's actual ability to design cars: in value for money terms, the Jaguar XJ6 has few rivals far the title of world's best car. Other factors, however, are far less encouraging.

The much heralded Maxi back-fired badly. Admittedly it now has around 2.1 per cent of the car market and costs for repairs under warranty are the lowest of anv BLMC car, but output is now way down on the production targets originally set. While much of the old BMC ' badge engineering ' has been eliminated, the Leyland range as a whole still suffers from having too many bodyshells and engines. Complexity on this scale undermines profitability yet still there seems an uncanny reluctance to wield the knife. A degree of post-merger rationalisation, especially in commercial vehicles, has taken place but the group still has a plethora of plants dotted across the country. Catching up with BMC's past under-investment, and correcting much of this, will need vast amounts of cash. By its own yardsticks, BLMC doesn't seem to be earning substantial enough profits to afford this. Where sales per employee at Ford are comfortably over £8,000 a year, BLMC at least on 1969's figures, still has to break the £5,000 barrier.

Nor has Stokes yet solved the central problem of BLMC: its labour relations and pay structure. Real power in the company still rests with the shopfloor in the Midlands. Unlike other major car manufacturers. Leyland is still trapped in the piece rate jungle. And in the last few months, rivals feel Leyland has been paying bitterly for this as workers have bid up wages, manipulating piece rates with a skill born of years of experience. Labour is Leyland's Achilles heel. Rivals feel that its labour force is still flabby and inefficient yet that no one dare broach the consequences of cutting it back. Plans to rationalise plants, or even shut some down, are circumscribed by the threat from the shopfloor. Even at the moment with the home car market as depressed as it is, British Leyland could be selling far more cars, if only it could shed some of its labour troubles and get more cars out of the factories.

And this applies to almost all the Jaguar, Rover and Triumph cars. Even models like the Mini and Austin 1800 are in short supply. To be fair to Stokes and his team, no one recognises these problems more acutely than they. Constant labour troubles, not just within the group, but in outside component suppliers have on occasions reduced even the redoubtable Stokes to near despair. Nor is it easy to change direction overnight in an industry where new engine and car development programmes can take five years. There are plans coming forward.

A new V8 sports car is due next month. The range of Triumph family saloons is to be revitalised and a new family saloon, designed to meet the Cortina competition head-on, is due next year after one of the fastest development programmes in the history of the industry. Yet Leyland's sense of priorities worries some. They see a lack of urgency in efforts to rationalise engine production and to throw more weight behind car and engine developments that are succeeding. The XJ6 seems a prime example of this.

The highly successful engine Triumph is producing for Saab is earning widespread praise but it will be months before it makes its way into a Triumph model. Until more positive evidence emerges from Leyland that problems like this an being tackled. The company must be counted as the weakest of the big four car manufacturers.

Superficially Rootes with its loss may appear the lame duck but the significant point about Rootes is that some of the losses have accrued from a really drastic rebuilding of its production plant at Coventry. Leyland still appears reluctant to act with such decisiveness. Again much of this can be attributed to the fragile nature of labour relations at British Leyland. Solving this problem is the key to Leyland's future and it means a great deal rests on the shoulders of the newly appointed director of industrial relations, Pat Lowry.

By all accounts he is tackling the problem with vigour but still faces a massive job. Yet success is absolutely vital. No one doinbts British Leyland's basic skills as a maker and seller of cars. Indeed its rivals have a very healthy respect for its potential. But none of these skills is worth a tot without stability on the labour side. British Leyland still looks like an athlete trying to run a four-minute mile in a very muddy field.