Link to this page: http://www.socialistparty.org.uk/issue/326/9313
Longbridge: Phoenix Directors Feather Their Own Nests
The businessmen who bought the BMW car factory in Longbridge, Birmingham and supposedly saved thousands of jobs in the West Midlands, are to be investigated by the House of Commons Trade and Industry Select Committee for their governance of the company.
Clive Walder, Birmingham Socialist Party
Former Rover Chief Executive, John Towers and three other Birmingham businessmen formed the Phoenix Consortium to buy the threatened car plant from German giant BMW for a nominal £10 and a £500 million soft loan. They were hailed as saviours by many local people, politicians and trade unionists at the time.
But subsequent events have shown their real intentions were to run the company themselves, with no accountability, and to line their pockets regardless of whether car manufacturing remains at Longbridge.
Originally, the four owned 100% of the shares in the company. Later they gave 60% of the shares to trusts representing the workers and Rover dealerships and, as compensation, they each got an interest-bearing loan note from Phoenix (effectively themselves) for £2.5 million to be repaid in 2005.
These loan notes have already accrued £1.2 million in interest. Although they only own 40% of the shares, they own 100% of the voting shares. So effectively the company, which was supported by most politicians and most of the public, is controlled by these four people plus another director they hired.
Hedging their bets
They have sold 42 acres of surplus land on the Longbridge site (clearly they aren't considering expanding the factory) and also bought, via MGR Capital (owned by the Phoenix Partnership and Halifax Bank of Scotland), Rover Financial Services, the company that runs leasing deals and credit schemes for people buying Rover cars. This will trade separately from the main company.
Most other car makers integrate their finance companies with the manufacturing side to tide them over lean times. Other profitable Rover-related companies, such as components business Xpart and engine and transmission company Powertrain, are also separately owned and their profits won't be used to support car manufacturing.
It would appear that Towers and Co. don't have great faith in the long term future of volume car making, so are hedging their bets so that at least they will be making money from leasing deals, components and possibly building engines for other cars for a few years if car making finishes.
In the 17 months to the end of 2002 MGR Capital made £13.7 million profit and paid £457,000 in dividends. Directors' pay has increased from £3.7m in 2001 to £15.1m in 2002 making them the highest-paid car making executives in the world!
The most scandalous revelation to come to light concerns the setting up of a hitherto unknown trust fund worth £12.9 million. It was set up to provide pension benefits to the five directors and their families - more money than has been put into the pension fund covering 6,600 Longbridge workers, which is currently £72.9 million in the red.
The company justified it on the basis that the directors had risked serious financial losses and had no pension fund set up for them. Currently Rover is losing nearly £100 million a year.
All this seems to have surprised people who originally backed the takeover of Longbridge by these people. Local New Labour MP, Richard Burden said: "Phoenix arose from the ashes of BMW's involvement with MG Rover in a way which was unique. That involved a lot of people and the directors should recognise that".
TGWU General Secretary Tony Woodley said: "the trust fund did not appear to be in the spirit of co-operation and willingness to share success and sacrifices alike established three years ago".
Most astonishing was this quote from Martin O'Neill, Chair of the House of Commons Trade and Industry Select Committee, who apart from thinking that the directors' greed would endanger funds for research said: "The directors have shown a degree of naivety and naked self-interest which frankly is most unfortunate because it will have a counter-productive effect on the morale of the workforce." He was actually more worried that this orgy of directorial greed would prompt unions to ask for bigger pay increases!
None of this has taken the Socialist Party by surprise. When Longbridge was threatened with closure, along with tens of thousands of West Midlands jobs, all anyone had to do to get public support was to promise not to completely asset strip the company as the venture capitalist company Alchemy (the original preferred bidder) did at the time.
In the end Towers and Co are capitalists and run businesses for profit not to provide employment. Their restructuring of the company, involving separating all the profitable parts from the manufacturing facility, shows they want to stuff their pockets as fully as possible with no regard shown to the workers, their families or the West Midlands economy.
Some people are now openly questioning whether Longbridge, and with it volume car production in Britain, will close. The Liberal Democrat leader on Birmingham City council and local historian and broadcaster Carl Chinn (who organised the demonstration three years ago), are threatening to sue Phoenix to force them to take independent directors on to the board and to confer voting rights on the shares owned by Rover workers and car dealerships.
However, this wouldn't stop the crisis in capitalist car manufacturing or remove the system's need to shed labour. It is not the structure of the company but capitalism itself, which makes workers' jobs insecure.
I remember standing outside Moor Street Station in Birmingham on the day of the huge demonstration against the closure of the factory with a petition demanding the nationalisation of the factory under workers' control and management and people were queuing up to sign it. Subsequent events have shown us that you can't trust the bosses and that that was the right demand to push.
In The Socialist 6 December 2003: