Cabinet approve BL's £1.8bn investment plans

Cabinet approve BL's £1.8bn investment plans
By Julian Haviland,
Political Editor

The Government yesterday announced broad approval for British Leyland's £1.8 billion investment plan. It will entail the development of a new British designed and built K-series engine, to replace the existing A-series used in the Metro, Maestro and Montego cars, and greatly extended collaboration with the Japanese company, Honda, including the shared development and construction of a new car.

The plan was first submitted to the Government last December, with amendments relating to further collaboration with Honda put to the Government in March. The Government's approval after much internal debate was announced in the Commons yesterday by Mr Norman Tebbit, Secretarv of State for Trade and Industry to the warm approval of Conservative MPs, several with marginal seats in the West Midlands and Oxford.

New arrangements with Honda, agreed in principle yesterday, for the building of Honda models by Austin Rover will promote employment by using spare capacity at both Longbridge and Cowley.

Mr Tebbit also announced that Honda was considering setting up its own engine manufacturing plant in Swindon, Wiltshire, to supply engines for Honda models and the Rover 213, for which at present engines are imported.

Labour MPs were sceptical about the strength of Honda's commitment to the Swindon plant, although Mr Simon Coombs, Conservative MP for Swindon. was quick to offer the town's gratitude for a "resurgence of engineering jobs". Cautious statements by Honda spokesmen did not reassure the Commons doubters. Mr Tebbit, when pressed said that it would be difficult although "perhaps possible" for Honda-badged cars to be built with the required levels of British content to be sold as British within the European Economic Community, unless the engines were built in Britain. But it was "important to encourage" Honda to build the Swindon plant.

Among West Midlands Conservatives the main cause for relief was the discovery that Mr Tebbit had successfully resisted proposals that investment of about £250 million should be saved by the purchase from abroad of engines for the Austin Rover car which will replace the Metro. This idea was promoted by the Prime Minister's policy unit among others. It was strongly resisted by BL, whose plans depend upon most engines in their cars being made in Britain, at least in the immediate future.

MPs familiar with BL's past appetite for public funding took some time to accept from Mr Tebbit that the new corporate plan is to be financed wholly by normal commercial borrowing and from internally generated cash. But Mr Tebbit was happy to emphasize that the Government would monitor all aspects of BL's performance. If it became clear that BL had any need or fear that it might deviate from the agreed pattern. he said the company would talk to the Government.

Mr Tebbit reminded the Commons that one of the BL board's main objectives was to return the business to the private sector as soon as was practical. To a specific question about the Unipart subsidiary, which last year made an operating profit of £14 million, he said that its employees were enthusiastic about a return to the private sector and he hoped this would be accomplished, market conditions permitting this year.

The Commons select committee on trade and industry is to examine the BL plans and the details of its proposed co-operation with Honda. Meetings with senior BL staff have been arranged for next month.