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What happened at Longbridge?

More rather than less government intervention in MG Rover might have prevented the excesses and failure of the Pheonix Four, argues Richard Burden.

If you haven’t read Jonathan Coe’s novels The Rotters Club and The Closed Circle, then you really should do so. They are excellent. Both are set in South West Birmingham, covering the 1970s and the period since 2000 respectively. If you have read them, you will have some idea of just how significant the Longbridge car plant has been for the area. It has not simply been a huge employer over the years. People in that part of Birmingham have often defined their community, and in some cases their own identity, by reference to MG Rover’s factory, or ‘the Austin’, as many older local people still call it. I know what they mean. When I first meet people from other parts of the UK or from abroad, they often ask me which part of Birmingham I represent. ‘Northfield’, I tell them. Blank look. “The bit that has the Longbridge car plant in it,” I explain. There is instant recognition. Everyone has heard of Longbridge.

The collapse of MG Rover has hit the area hard. It is a long time since over 20,000 people worked at the Longbridge plant. But most people in the area have someone who has worked there at some time, or who know somebody who was a Longbridge worker. Even though the workforce had shrunk to just over 6,000 people at the time of the collapse, the plant was still important to the well being of the area, and to the broader Midlands and beyond. The fate of thousands of jobs in the vehicle components and motor retail industries were tied to that of MG Rover. And in the area immediately around the Longbridge plant, even the local shops relied on passing MG Rover workers’ custom for a big part of their turnover.

So people want answers. Not so much about the fact that MG Rover was not able to survive. Everyone knew that in an industry as global and competitive as automotive, the company needed a strategic partner to survive beyond a few years. That was clear and openly stated from when Phoenix took over in 2000. It was equally clear from that time that there was never any guarantee this would happen.

The issue is much more the manner in which the collapse took place and what led up to it. Just why did the MG Rover’s talks with prospective partners, Shanghai Automotive (SAIC), which had been presented as so far advanced, finally come to nothing? What was MG Rover’s board thinking of when it allowed the sale of important intellectual property rights to SAIC before the full deal was done? Had people been misled? Was there something fundamentally wrong with way PVH had structured its businesses and run their affairs? What role did the Government play in all of this?

That is why it is right for Trade and Industry Secretary Alan Johnson to launch an official Inquiry and it is vital for the results to be made public.

The Inquiry has to get at the whole truth. In the meantime, beware some of the “instant analyses” and blame games which have followed MG Rover’s collapse. Take, for example, prominent Tories who are claiming Labour “forced” BMW to give Rover to the Phoenix Consortium in 2000, instead of to a venture capitalist firm called Alchemy Partners who advocated an immediate and massive downsizing of Longbridge limited to producing sports cars. Somebody who has been particularly vocal on that score recently has been Bromsgrove Tory MP, Julie Kirkbride. Sadly, Julie seems to be suffering a spot of selective amnesia. In 2000, she described the success of Phoenix bid as “extremely welcome and heartening for the 1,500 workers in my constituency employed at Longbridge”! (Hansard 9th May 2000).

Julie Kirkbride and other critics also conveniently forget that Alchemy had withdrawn its bid to take over Rover when it still had exclusive negotiating rights with BMW. When BMW subsequently opened formal negotiations with the Phoenix consortium, the alternative for Longbridge was complete closure. BMW was going to pull out anyway. The fact that closure or immediate massive downsizing was avoided in 2000 has given the West Midlands economy, and particularly MG Rover’s supply chain, time to prepare, adjust and diversify. Closure in 2000 would have meant many more thousands of job losses than we have even seen this year.

According to the Phoenix plan, success would have brought MG Rover the partner it needed to invest in new models and build a secure future for the company. As we have seen, even failure in this would buy the region valuable time. So Phoenix was not necessarily as misconceived as its critics make out.

Although MG Rover workers themselves have also had five years pay that they would not have had if the plant had closed in 2000, one of the real tragedies and injustices of the collapse this year is that those workers have now lost their jobs having bought time for others to keep theirs. And the chaotic and sudden way in which it finally happened has only made that injustice worse. The four directors who took over MG Rover – now known as the “Phoenix Four” have a good deal to answer for, not only about some of the businesses decisions they made (or failed to make) but also how they personally awarded themselves millions of pounds, even if the company went bust, about how thousands have ended up out of work and how MG Rover’s pension fund now has a hole in it.

So where was the Labour Government in all of this? Along with the unions, they did indeed give Phoenix important political backing which encouraged BMW to treat the consortium seriously. Some commentators have attacked this as ill-judged meddling. Arguably, though, the story of the last five years does not indicate there was too much government intervention over Rover. Perhaps there should have been more.

There were points over the last five years when greater leverage by government, including if necessary, the acquisition of a strategic stake in the company, might have provided a transparency that would have promoted better decision making and prevented the personal excesses of the Phoenix Four. It could have ensured that employees had a bigger stake and say in the company.

There could have been additional options for the shape of investment in new product which may not have fallen foul of the EU competition rules; and a government stake may have even boosted MG Rover’s credibility in its search for the international partnerships it needed to be sustainable in the medium term. After all, when dealing with Shanghai Automotive, the Chinese company that was promoted as MG Rover’s lifeline, Phoenix was effectively negotiating with parts of the Chinese state machine anyway. And the indications are that the Party men and women from Shanghai proved themselves to be rather more astute capitalists than the Phoenix Four!

As far as New Labour is concerned, the days of old style intervention in industrial policy and nationalisation are long gone and probably rightly so. Mid 20th Century Labour orthodoxy – particularly on the Left - was often far too quick to advocate forms of public intervention as a corporatist panacea in industrial policy, even when such responses simply did not address the scale and nature of the economic and technological transformation taking place.

Fast forwarding the tape, however, the MG Rover/Phoenix story 2000 – 2005 was also the product of a particular set of circumstances, sharing many challenges faced by the rest of the motor manufacturing sector, but also unique in significant ways. Labour did intervene but its intervention could have been more effective if the new orthodoxies which had grown up had not held it back from doing things that may well have been caricatured as a return to ‘Old Labour’ but which, in this case, may have made important differences to events at key times.

There may be important lessons here for the future of industrial policy.

Richard Burden is Labour MP for Birmingham Northfield