Leyland dragged nearer stake

THE GUARDIAN
By John Carvel

British Leyland's financial prospects were dealt a double blow yesterday as its £27.5 million deal to sell the Spanish Authi car plant to General Motors fell through and hopes of a Japanese marketing link with Toyota appeared to be fading. Without the sale to General Motors, Leyland says it will have no alternative but to run down its Spanish operations and write off its investment. Although the two companies are leaving the door open for a future transaction, there seems no immediate prospect that it can take place.

Leyland, which made a loss of almost £24 million last year, has received a Government guarantee for £50 million of bank borrowing to see it through until the spring. This money it has not yet touched. But its plans for prosperity and expansion involve an injection of government money which the company has estimated will total £100 millions and may turn out to be £150 to £200 millions.

The news from Spain seems likely to deprive Leyland of a much needed cash injection and must weaken its resistance to future Government demands for a shareholding commensurate with its financial support. This stake is likely to be at least half. General Motors announced that its plans to purchase the Authi plant, 98.5 per cent owned by Leyland, had failed after "a series of far reaching discussions" because of the conditions imposed on the sale by the Spanish Government.

These included stipulations that General Motors should not win more than 10 per cent of the Spanish car market, should export at least two-thirds of production and should proceed with investment plans by 1977---before General Motors was ready. A Spanish Government decree imposing these conditions on the sale expires tomorrow apparently without any chance that they can be fulfilled.

General Motors says nonetheless it is still interested in the purchase and will look favourably on any moves from Spain. British Leyland said: "The negotiations between General Motors and the Spanish Government have been very protracted, and in the meantime Leyland's Authi business has been adversely affected by the continuing doubt. If the negotiations lapse, as General Motors say appear likely, British Leyland will have no alternative to running down the operation. This will involve a write-off below the line but it will stem a continuing loss."

The Authi operation made losses of about £6 million in the year ended September 30 last. It has also suffered from labour disputes and a fire in one of the plants. Mr John Barber, Leyland's deputy chairman and managing director, said the Spanish Cabinet was expected to have a final look at the Authi deal today. It seems that after more than a year of inconclusive negotiations, hopes of a last minute change of heart are slim.

"We wanted to get out of Spain, and we had a good cash offer," he said.

Now Leyland would have to run the operation down, although there were still possibilities that other buyers might be interested.

"Obviously we had contingency plans which we will now look at with more seriousness."

As far as relationships with the Government are concerned there was a distinction between the short term situation this winter and the programme of major investment over five to ten years. Under the second heading the possible cash injection from a Spanish deal was relatively small.

OUR TOKYO CORRESPONDENT ADDS - It became clear that there was very little possibility of British Leyland expanding its sales in Japan through a marketing agreement when a joint statement was issued after three hours of talks between Mr Imazu Iwao, Toyota's managing director, and two senior BLMC directors.

They flew to Tokyo in the hope of enlisting Toyota's strong dealer network. The statement disclosed that the talks had dwelt mainly on Jaguar and other prestige cars because "changes in automotive circumstances throughout the world since 1973 have made it extremely difficult to agree upon a wide range products." Therefore BLMC had "brought a new proposal which limited its immediate intention to Jaguar and other prestige car lines."

But the statement left no doubt that even in this less competitive area Toyota was not interested in helping British Leyland. Though both sides agreed to "continuing dialogues" no date was fixed for a fresh meeting . Toyota could not give its decision at the meeting , the statement said. It required little imagination to read that as a Japanese way of saying "No".