The Economy
The Rootes Deal
By NICHOLAS DAVENPORT
Ir is always a shock to a socialist to be re- minded that capitalism is an international system— that there is nothing to prevent a businessman moving his capital around the non-Communist world and investing it where he thinks it is most profitable and safe. The news that Chrysler was making a bid for 30 per cent of the voting shares and 50 per cent of the non-voting 'A' shares of the Rootes Group brought home to the Labour Party this disagreeable truth and not unnaturally they expressed great indignation. But they can do nothing about it except attack poor Mr. Heath who foolishly gave it his blessing before the Government had even had time to consider its inevitably favourable decision. Mr. Wilson was given the opportunity to make the Groucho Marxian wisecrack that the Tory Party was schizophrenic because it was opposed to the British people owning the steel industry but had no objection to foreign bids for a major manu- facturer. I do hope he will not threaten to nationalise Rootes before the deal is signed, sealed and delivered.
This 1 say because the deal is so obviously gcod from a business point of view. Chrysler, after its 1958-59 losses, has made a remarkable recovery in the United States under fabulously clever management, but it lacks the European factories and distribution which its growing out- put needs. (That is why it bought a now con- trolling interest in the French Simca.) Rootes lacked money and size. It was, in fact, in danger of falling victim to the ruthless competition in the motor trade until it broke into the small car market with its excellent 'Imp.' It gambled £25 million in the Linwood factory in Scotland to make this popular car, but with labour and technical troubles plaguing the works this has not yet paid off. (It is turning out 2,500 cars a week out of a capacity of 3,000.) The company has got to spend much more on new plant, new designs and new methods if it is to keep in business with its other models. (It has already planned an issue of £15 million.) Chrysler's millions and know-how are therefore a god- send to Rootes and their shareholders.
Rootes non-voting 'A' shares have been as low as 5s. 7-id. this year and were only 7s. a few weeks ago. Now Chrysler is bidding 21s. for half of them. This is 8s. or more higher than the shares ever reached in the faraway days when Rootes were making money. No doubt Chrysler can justify the price to their own shareholders. They are paying £12 million for a 46 per cent interest in a company with a popular 'mini' car and a good distribution outlet whereas they paid £45 million for a 60 per cent interest in Simca, whose output is no bigger than that of Rootes. It looks as if a marriage between these two motor families will be an excellent partner- ship. No Rootes shareholder who has been sick with worry recently after the losses incurred in 1961-62 and 1962-63 is going' to care a damn as to whether the Rootes family retain their near-50 per cent 'control."Amazed, relieved and delighted' was how one City editor described the feelings of the average Rootes shareholder. As Mr. Harold Wilson said, the motor-car industry is vital to the British economy and on grounds of national prestige the Labour Party is not alone in being concerned about so large a proportion of it falling under American con- trol. Before this deal three of the five big groups were fully independent and British: now only two—BMC and Leylands (Standard-Triumph). Whether the Rootes family like it or not they cannot now be called independent. It is fortunate that our two British independents are financially strong enough' to stand up to the two American giants—Ford and Vauxhall (General Motors). I only hope they make a bid for the two smaller British independents—Jaguar and Rover—before the Americans start calling upon them.
Of course, the fact that the Americans are now responsible for slightly more than half the motor vehicles made in this country does not mean that we British are losing control of the industry—only the profits on that part of the equity held by American investors. We retain control because Parliament has the power of taxation and direction. An industry which stands or falls on the percentage of purchase tax levied on the new car will always be at the mercy of Whitehall. The question of foreign management is therefore a question of national prestige. But it is only fair to point out that American manage- ment in the motor industry has been extremely helpful to trade union labour (as opposed to `Commies'). The Ford Motor Company, haVing got rid of its agitators, has recently introduced a model industrial charter, guaranteeing em- ployees compensation for redundancy at the rate of one week's pay for every year of service. No British company has ever offered such terms. And Ford labour is the highest-paid in the industry.
On the grounds that American management not only pays high wages but is more scientific than British in the economical and productive use of labour—witness the super-efficiency of the Fawley refinery—the Labour Party should welcome the investment of American capital in this country. In fact, they should, feel distressed by the fact that the rate of this investment has fallen off since' the formation of the European C ommon Market. The figures are interesting. liy 1962 the direct investment (not portfolio) of American business in foreign countries had reached the colossal total of $37,145 million— three and a half times larger than it was in 1950. Of this total the UK share was a little over 10 per cent, namely $3,800 million. Manufactur- ing accounted for 66 per cent of it and oil for 21 per cent. According to a report of Manage- ment Information Ltd. the British share of American direct investment in Western Europe over the period from 1950 to 1962 declined from 48.9 per cent to 43 per cent. Whether this trend will now be reversed by the hostility which General de Gaulle is presently showing to American participation in French business re- mains to be seen, but the decline iii the profit- ability of American capital in the UK under the Tory 'stop-go-stop' policies is not an en- couragement, (Thanks to Selwyn Lloyd it dropped to 9 per cent in 1962 against 18 per cent in 1954.) Perhaps under a Labour Govern- ment we will see a recovery in American invest- ment in British industry. After all, the Americans will appreciate a British Prime Minister who understands the application of science to industry,
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