British Leyland devoured billions pounds of taxpayer’s money before it was finally broken up and sold off. According to New York Times journalist Nelson Schwartz the Thatcher government’s bailout "remains the classic example of a futile government intervention."
Mrs Thatcher was unable to resist the car maker’s insatiable demands for cash. According to Schwartz, her government ended up handing over £3.6 billion (£11 billion adjusted for inflation) to keep the factories open. "On any rational commercial judgment, there were no good reasons for continuing to fund British Leyland", she concedes in her autobiography. The company was a high cost, low volume manufacturer in a world where low costs and high volumes were essential for success. So why did she do it? The "political realities had to be faced", she says, "BL had to be supported":
I knew that closure of the volume car business, with all that would mean for the West Midlands and the Oxford area, would not be politically acceptable to the Cabinet of the Party, at least in the short term. It would also be a huge cost to the Exchequer — perhaps not very different to the sort of sums BL was now seeking (p 120).
Longbridge was on the southern edge of Birmingham, and its surrounding electoral districts were a mix of middle-class semirural housing and council estates. In the 1959, 1964, 1970, 1974, and the 1979 elections these districts held the key to victory. In an area so rich in marginals, no government could risk harming it; whether the government was Labour or Conservative, it bailed out Longbridge.
By the late 1980s however, the Conservative party was less dependent on marginal seats strongly affected by the fortunes of the car industry. It was then safe to break up the company and sell off the parts. When MG Rover finally stopped producing cars in 2005, a report by the Cambridge-MIT Institute’s Centre for Competitiveness and Innovation concluded that the failure was the final act in cycle of decline that took four decades to work through. Even by the 1970s the company was unable to use government cash injections effectively.
According to Steven Kates at Catallaxy, Mrs Thatcher remains "the gold standard of a conviction politician on the right side of history". But even she couldn’t resist subsidising the car industry when the electoral deck was stacked against her.