Graeme and others
I agree with you that we should cut the English cottage industry some
slack. They have filled a niche too small for the big companies to bother
with. Morgan in particular has shown that this approach can be a
commercial success.
However, it was not poor sports cars that sunk the British auto industry.
In fact, most traditional British sports cars sold well right up to the
point that they were withdrawn from the market. Lack of success in
developing regular cars that could compete on a global basis in the
seventies and eighties is what killed the British car industry.
I have often heard that BL lost money on every B sold in America the last
few years. I doubt that an MGB sold in 1980 cost more in parts and direct
labor than it sold for. I would not doubt that the "burdened" cost
(adjusted to reflect the cost of capital equipment and overhead for the
entire company) was high because it is common for companies to shift burden
to older models and away from new ones to make the new ones look good on
the balance sheet so that they can justify their decisions and blame the
lack of profits on the old models. As an example- say it takes 100 hours
to build a B but only 40 hours to build a new sedan. Now you are paying
your workers 30 bucks an hour including benefits so the difference in
direct labor is 1800 bucks. However, you have spent millions for the new
plant to build the sedan and you have to allocate that cost in some way.
Typical practice is to burden the hourly rate by a set amount so you add
another 40 bucks an hour burden to cover capital and overhead to
everything. All of the sudden the MGB has 7000 bucks labor cost instead of
3000 and is a losing proposition. Even though none of the development
engineers or new plants and tooling has one bit of benefit to the MGB, it
must pay for its share of the cost and, on the books, it becomes an anchor
on the company and must be eliminated. This is done even though it is the
only car you are selling where everything is paid for and that the
marketplace will actually buy.
Today, most schools are teaching that using burdened costs to make business
decisions is stupid and that only "marginal" (costs that are directly
incurred/would actually go away if the product was eliminated) costs should
be used when making build or eliminate type of decisions. However, this
type of information is tougher to get and favors older, paid for designs so
most companies still use the burdened cost to make decisions. Most
companies also still shift this burden around to make their latest
decisions look good and all older products look less profitable to promote
present management's worth to the company.
In the fifties, buying an MG meant buying into Sid Enever's vision of what
a sports car should be. An XK120 is every inch Sir William's sports car
while Morgans and Healeys wear their creator's name for all the world to
see. Today the MGF, DB7 and XK8 are wonderful cars and I would love to own
one if I could afford it but they are direct descendants in name and
marketing intent only. Ford bought Jaguar and BMW resurrected MG because
these names have value. The auto industry goes through cycles and we look
to be entering a new cycle where driving fun and exciting styling will be
important. Most cars are very good nowadays so companies are going further
to woo customers. With the aging boomers, marketers have also found that
marque history is an important especially when going after the more
profitable "lifestyle" autos. Lexus and Acura luxury cars have been
successful because Toyota and Honda have built a reputation based on
quality and value. The NSX has failed to impact the exotic car market not
because it is a bad exotic but because Honda does not have a pedigree
sufficient to play in that market. The same features praised as huge
improvements in a Ferrari are lambasted for robbing soul from the NSX.
This is why the old marques are making a resurgence. Did VW need Roll's
factory to build a luxury car? I don't think so.
Committees and computers build wonderful cars and market research ensures
that people will buy them but, for me, British sports cars from the fifties
and early sixties will always be the golden era for cars with "soul."
Regards,
Bill Eastman
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