Workers Daily Internet Edition Year 2009 No. 039

Year 2009 No. 39, June 15, 2009	ARCHIVE	HOME	JBBOOKS	SUBSCRIBE

The news that the US General Motors is to sue for bankruptcy protection has been closely followed by more than 5,000 car workers in Britain at GM’s Vauxhall’s plants at Ellesmere Port and Luton. The unions have warned that since the sale of Vauxhall UK has been brokered by the German government, as it is part of the German-based Opel group, British rather than German plants will bear the brunt of any redundancies and plant closures, despite Vauxhall having a greater domestic market share than Opel. "The Germans have been central to this. We appear to have been on the sidelines," Derek Simpson, Unite joint general secretary, has said. "With the German plants literally guaranteed security, thanks presumably to the German government's involvement and the billions of euros that they seem to be putting up, that causes a worry for everyone else. Thousands of jobs are at stake at Luton and Ellesmere Port. Once lost they won't return; our manufacturing capability and the UK's R&D base will be left hamstrung. It's no good providing billions to the banks but buttons for manufacturing.”

At the same time, West Midlands van maker LDV at Washwood Heath has failed to find a buyer, filing for administration, and creating more uncertainty over the car industry in Britain. The workforce at LDV has been slashed from 850 to 40 by the administrators PricewaterhouseCoopers. It is reported that even if a buyer were found, production would be taken overseas, ending a history of car production at the former British Leyland plant in Birmingham. This will also cause devastation to associated industries, with a suggested further 5,000 jobs being put at risk. LDV is owned by the Russian car group Gaz. Joe Morgan, the regional secretary of the GMB union, has said, “Gaz’s behaviour does not bode well for Vauxhall workers. Gaz has decided not to put any more money into LDV and has just moved on to the next venture. That is a worrying track record for people at Vauxhall.” He went on, “It appears as though the government has thrown the towel in as all they are saying is they are mobilising the job centre people to help.” It is interesting to note that Business Secretary, Lord Mandelson, removed himself from involvement in negotiations in the future of LDV, formerly called Leyland DAF, because of his associations with the Russian Oleg Deripaska, the billionaire who owns Gaz, on whose superyacht at Corfu he famously guested along with Shadow Chancellor George Osborne.

The trade unions have pointed out that the German government in contrast has offered a €1.5bn bridging loan to Opel and has won guarantees on four plants. This underlines that the priorities of the British government are set on meeting the claims of the financial oligarchy, and in particular attempting to shore up the status of the City as an international financial centre. No one is more enthusiastic for this project than the team of Gordon Brown and Peter Mandelson.

This scenario is indicative of the wrecking of the car industry in Britain, together with the manufacturing base in general, in particular the coal and steel industries. Decisions affecting the national economy and the lives of millions of working people are being made in Detroit, Washington, Mumbai, Moscow and elsewhere, with the Westminster government claiming that these are matters which are outside of their control. The burden of the crisis is being passed onto the working class and people, while the financial oligarchy are the ones who are benefiting from the handouts of the socially produced wealth of the country.

The fact is that no solutions to the survival of a national socialised economy can emerge from a perspective which refuses to recognise the decisive central role played by the working people in the creation of social product and the delivery of services. What is needed for the car industry and the manufacturing base is a pro-social programme which recognises the demands of the times. It does not need bailouts to the banks and owners of capital, while the champions of the financial oligarchy passively oversee the complete destruction of the manufacturing base under whatever signboard, including that of the so-called “knowledge-based economy”.

It is the working class which champions the well-being of the social economy, while the government is being shown only to be intent on paying the rich and overseeing the wrecking of manufacturing and of the production of the means of production, as well as of agricultural production. Worker politicians are needed who will take up the championing of a human-centred society and economy in opposition to the political champions of the monopoly capital who rule the country. Worker politicians must champion a new direction for the economy under which the people decide, in opposition to the direction where a return for the owners of capital is what is deemed decisive. It is clear that this latter direction is sending the national economy in Britain deeper and deeper into crisis, with a monopoly capitalist system under which more is being taken out of the economy then is put into it. The workers must become organised as an effective independent political force in their own right to change the situation so that it favours the working class and people. It is the working class with its worker politicians who can and must save the day.

Stop Paying the Rich! Increase Investments in Social Programmes!
No to the Wrecking of the Social Economy! There Is A Way Out of the Crisis!
For a Pro-Social Programme for the National Economy!

The First Quarter Results of BMW

BMW’s First Quarter Results come in the wake of the announcement of the sacking of 800 agency staff earlier this year at the Mini plan in Oxford, along with other job josses over recent months. For the BMW Group as a whole, the current workforce of 99,112 is down 7.3% on a year ago.

These job cuts and other concessions from the workers have been justified on the basis of falling profits and now losses due to the economic crisis. BMW reports revenues for the first quarter of €11.5bn (£10.1bn at the time of writing), equivalent to over £100m per day. Yet this is translated to a bottom-line loss of €152m (£133m) for the quarter.

Workers should not be taken in by such corporate disinformation used to justify concessions and cover up various hidden agendas, but discuss these reports from their own point of view. This requires breaking open how capital-centred accounting practises based on narrow self-interest can convert colossal revenues into bottom-line losses.

Before going into the details, it is important to look at the general argument of the report. What is its thesis? In general terms, the argument runs as follows:

The economic crisis is hitting sales.
The financial crisis requires refinancing; the high costs involved are hitting profits further.
The economic climate remains uncertain and it is not possible to make any reliable predictions.
In response, production has been cut, while costs are being managed, such as “lower personnel expenses”.

This is the gloomy outlook. On the other hand, management are to be praised: as a result of the management’s tough decisions, BMW allegedly has additional scope to extend its competitiveness and its profitability targets for 2012 remain in place. The workers should stay on side during these tough times.

In general, the problem, given falling sales, is made one of reducing “costs”. When looking at the details, the report is seen to present a confused mess of so-called costs, many of which turn out to be various forms of capitalist profit such as fees, interest, refinancing claims and taxes. At the same time, workers’ wages, benefits and pensions haunt the report as unspecified “costs”, which in reality are the workers’ claims on the added-value they themselves have produced. In fact, they are never specifically mentioned: they are conspicuous by their absence from the accounts.

Useful information

Corporate financial reports present a jumble of sales, costs, claims and profits in the most irrational and self-serving manner that make it very difficult for workers and the population at large to extract any useful information.

From a working-class perspective, useful information means at the very least how much value has been added by the labour of the workforce, precisely which sections of society have made claims on this added-value and the effect on the socialised economy as a whole.

From a capital-centred perspective, useful information means whatever is useful to further the agenda of particular private interests, not considering the socialised economy as a whole but the company in itself as a competing part, to rally the workers behind “their” company.

Added-value

The value of the product, in this case vehicles, is determined by the sum of total work-time necessary to produce a given quantity and quality of product. The total work-time includes accumulated work of previous stages of production right back to the extraction of the raw materials: this value is transferred to the product. The live work-time is the value added to the product on top of the transferred value.

In a market system, this added-value found within the social product must first be sold (realised) to unlock its use value by turning the product into money for the company and putting the product to use for the buyer. Furthermore, this realisation takes place at market prices, which may not do not necessarily reflect the total work-time held in the product. The weakening of revenue by both social product going unsold and the sold product being sold below its value represent serious problems of the capitalist system. It is the realised added-value that is distributed as claims by the two main social classes – workers on the one hand and owners of capital and the governments that represent the owners of capital on the other.

The figures

The opening page of the report is a table “BMW Group in Figures”:

		1st quarter 2009	1st quarter 2008	Change in %

Deliveries to customers
Automobiles	units	277,264	351,787	– 21.2
Motorcycles	units	17,232	21,046	– 18.1

Vehicle production
Automobiles	units	267,637	405,595	– 34.0
Motorcycles	units	29,111	28,589	1.8

Workforce at end of quarter
BMW Group		99,112	106,887	– 7.3

Financial figures
Operating cash flow	euro million	1,122	1,063	5.6

Revenues	euro million	11,509	13,285	–13.4

Loss / profit before financial result (EBIT)	euro million	– 55	827	–
Thereof:
Automobiles	euro million	– 251	619	–
Motorcycles	euro million	28	36	– 22.2
Financial Services	euro million	70	79	–11.4
Other Entities	euro million	12	36	– 66.7
Eliminations	euro million	86	57	–

Loss / profit before tax	euro million	–198	641	–
Thereof:
Automobiles	euro million	– 471	539	–
Motorcycles	euro million	26	34	– 23.5
Financial Services	euro million	72	84	–14.3
Other Entities	euro million	24	– 5	–
Eliminations	euro million	151	– 11	–

Income taxes	euro million	46	– 154	–
Net loss / net profit	euro million	–152	487	–
Earnings per share	euro million	– 0.23 / – 0.23	0.74 / 0.74	–

The revenue of €11,509 is quoted followed by EBIT (“earnings before interest and tax”) of –€55m. The difference, the conversion of revenue into loss, is not explained yet but simply presented to prepare for the gloomy news to follow.

EBIT is straightforward disinformation. Interest and taxes form claims on realised added-value by the holders of debt in the case of interest and by governments in the case of taxes. They form part of capitalist profit taken as a whole and yet are presented as costs according to the narrow outlook of the report. EBIT deflects attention from the huge claims on realised added-value by the holders of debt.

The profit before tax is quoted as –€198m. Part of the claim by owners of debt is the difference between EBIT and this figure, revealing a substantial €143m (£125m). This “cost” is part of the capitalist profit apportioned to the holders of debt.

“Net profit”, on the other hand, is the claim of the holders of equity (shareholders). It is only this claim that is considered the profit in capital-centred accounting. That one portion of capitalist profit can be considered a cost while another “the profit” reveals the irrationality of the accounting practises.

Further, the same individuals can sit on the boards of a number of both industrial and financial companies at the same time, while holding shares in a spread of other companies, which underlines this irrationality. BMW chairman Norbert Reithofer has been a member of the Joint Advisory Council of Allianz SE since 2007. Allianz is the second largest financial monopoly in the world after Bank of America. In general, there is no one particular section of ownership that takes precedence over any other: the notion of ownership is fully interconnected.

The taxes of €46m (£40m) are part of the claims of capitalist states. They are only part of these claims because these states claim many other forms of taxes, a large proportion being personal income taxes on salaried employees, which do not feature in the accounts. This is also part of the capitalist profit. BMW is a multinational company operating in states such as Britain and Germany, where taxes are claimed by the collective of capitalists represented by the various levels of government in those countries. This is regardless of how the taxes are eventually utilized, though it may be added that these are states where the working class and people are marginalised from decision-making, and where government finances go to national debt repayments, pay-the-rich schemes such as PFI in Britain, wars of aggression, and so on.

The above figures represent only parts of the apportioned profits, as the difference between the €11,509 revenue and –€55m EBIT remains unexplained, and can only contain a combination of claims on the added-value (workers’ wages, benefits and pensions on the one hand; refinancing “costs”, executive salaries and bonuses, and other claims on the other); transferred-value (raw materials and wear-and-tear on machinery) and true costs (supervision, marketing, the sales process, bookkeeping, etc.).

The difference, the income and so-called costs, are superficially broken down in the income statement:

Revenues	11,509
Cost of sales	–10,457
Gross profit	1,052

Sales and administrative costs	–1,110
Other operating income	238
Other operating expenses	– 235
Loss / profit before financial result	– 55
Result from equity accounted investments	6
Interest and similar income	173
Interest and similar expenses	– 224
Other financial result	– 98
Financial result	–143

Loss / profit before tax	–198

Income taxes	46
Net loss / net profit	–152

Attributable to minority interest	1
Attributable to shareholders of BMW AG	–153

Earnings per share of common stock in euro	– 0.23
Earnings per share of preferred stock in euro	– 0.23

The “sales and administrative costs” possibly approximate to true costs; it is difficult to say. In any case, the breakdown is hardly satisfactory. What accounts for the colossal €10.4bn (£9.1bn) “cost of sales”? The utmost incoherence and arbitrariness employed is hinted at in the footnote that costs include “reclassification of research and development costs into costs of sales (!!)”

Aims and the alternative

What aim does the financial report serve? For what are the workers being prepared? The overwhelming tone is negative, the only way out being that the company has been well-prepared by strong management decisions to weather the storm.

Ominously, the automobiles’ “profit” is reported as worst-performing, and within this, deliveries of Minis are down the most (page 8 of the report). BMW cut production during the first quarter, though Mini production has not been cut by the most. Are workers at the Mini plant being prepared for further cuts?

Workers must reject the constant repetition that their claims on the added-value they themselves have produced represent a “cost” of production. Workers need to arm themselves through discussion and informing themselves by studying financial and other statements and political developments from their own perspective, the only defence against disinformation. On the basis of the prevailing capital-centred viewpoint, all sorts of concessions are forced from the workers in terms of wages, benefits, pensions and jobs, presented as “cutting costs”. Rather, it is the owners of capital that should be forced to justify their claims. Concessions are not solutions!

As well as rejecting company, state and media propaganda that there is no alternative to concessions, workers must demand a say in the socialised economy so that they become the determining factor and are empowered to put the entire economy and social product to the service of the working class and people. A modern self-reliant economy would not allow the owners of capital of multinational monopolies such as BMW to extract vast amounts of value from the national and local economy or to exercise their assumed monopoly right to shift production, trampling over the rights of people to a livelihood in the process.

Our Vanishing Van Industry

David Bailey, June 5, 2009, Automotive (extracts)

Whilst Britain has seen its production of heavy end commercial vehicles run down in recent years, light commercial vehicles are still made in the this country in significant numbers.

Yet that could well change over the next three years unless the British government steps in, as the seismic changes that have unfolded in the world's auto markets threaten to wipe out mass van production in this country, leaving only very small niche producers.

At the moment there are three main producers – Ford at Southampton, GM/Renault's joint venture at Luton, and LDV here in Birmingham. The latter has been in suspended animation since December when production was largely stopped as the double whammy of credit crunch and recession impacted.

If current trends continue, all three could effectively have gone by 2012, with all main van demand then having to be met by imports, and with jobs and capacity lost forever.

The key question for the British government is: does it want a van industry in this country? If so, it needs to step in with an industrial policy that can make that happen. LDV is a good place to start. Ford makes engines in Britain but its only British assembly plant – after it pulled car production out of the UK – is its transit van plant in Swaythling (Southampton). Ford has laid off staff at Southampton and most analysts see the plant winding down.

Indeed, Ford itself has indicated that they only plan to continue making the Transit panel van at the Swaythling plant until 2011; after that the site will make only the chassis cab version of the model. By 2011, production will be halved to 35,000 units a year. Volumes beyond 2011 are uncertain and are likely to be limited.

Meanwhile, Ford has invested heavily in Transit van production abroad. In effect, Ford is shifting mass production of the "backbone of Britain" (Ford's phrase for the van) to Turkey, with the loss of jobs in Britain.

GM's upheavals in the US have led to its European arm being potentially spun off to the Canadian supplier Magna, with backing from Russia via a government-owned bank and Gaz. The German government is providing almost €5 billion in short term financing and loan guarantees to effectively safeguard production in Germany.

Given that Magna openly discussed cutting some 9000 jobs in Europe, this leaves Vauxhall vulnerable as it is easier and cheaper to lay off workers here. Current van is scheduled to run to 2012. After that, Luton faces an uncertain future as Magna wants to expand into the Russian market and Gaz has capacity there to produce GM vans.

This brings us back to LDV.

Having offered a critical £5 million bridging loan to enable the Malaysian firm Westar to complete a takeover of LDV, BERR [Department for Business, Enterprise and Regulatory Reform] pulled the plug last week when it became clear that Westar had been unable to raise external finance to complement its own internal resources.

That is a curious logic. Even the likes of Tata, a huge conglomerate, have struggled to raise finance on the markets because of the global credit crunch. It seems that the government won't intervene because the market won't provide the finance – of course if the market did provide the finance the government wouldn't need to intervene in the first place.

[…]

[I]n recent months, BERR has repeated the point that LDV hasn't made a profit in several years.

This rather misses the key fact that over the last few years some £600m has been invested in the award winning Maxus van range which could provide an ideal platform for the proposed switch into environmentally friendly green electric vans. The latter is a rapidly growing market especially in the depot-to-depot market in urban areas.

Overseas this has been supported by tax breaks – something the government here could do to help LDV and Modec in Coventry. The electric Maxus is already developed and ready to roll, and LDV owns the intellectual property rights to the electric version.

As battery life improves and the recharging infrastructure in urban areas develops, this market will grow. LDV could be at the forefront of the proposed 'green new deal'.

Put simply, there is a new market unfolding here, and LDV are effectively saying to the government: "put your money where your mouth is" when you talk about a low carbon future.

In support of LDV, a number of other points need stressing.

1. The depreciation of sterling improves LDV's position regarding export markets.

2. The firm is self-contained, owing the intellectual property rights and production facilities for the Maxus van in diesel and electric form – unlike GM and Ford operations in the UK where stratgeic decisions are made elsewhere.

3. BERR keeps referring to the government's obligation to the taxpayer. That's absolutely right, but they need to be doing their sums properly in weighing this up. LDV contributed around £7 million in 2008 (not exactly a great year) in PAYE and National Insurance to the government coffers. You could treble that by adding in the supply chain and dealer network.

Some of those firms and people might get other jobs and hence still pay NI and PAYE if LDV does close, but even a conservative estimate suggests that the government picks up a useful £15+ million a year from LDV's operations. Add in £50+ million in purchasing and £50+ million in exports and you can start to see the value of LDV to the economy and the government.

4. We know from our research on the collapse of MG Rover that quality jobs matter and that three years on workers were earning £5600 a year less in real terms than when they were at MG Rover. The Rover Task Force cost the government £150 million in picking up the pieces. And in this case, the LDV plant is in one of the most deprived areas of Birmingham. Many workers will struggle to move on, especially in the current downturn.

5. The government might be concerned that Westar would shift production overseas. In that case the loan guarantee could be converted to an equity stake with a golden share that would prevent this happening.

6. LDV management state that they have restructured and have cut costs and have brought down the output level where it can break even. The government needs to scrutinise this and if LDV's costs can be covered at around 10,000 units this remains a viable firm worth backing.

As I've said in earlier blogs, it's time for BERR to think out-of-the-box, both in terms of where the market is going, and how LDV – and indeed the British van industry – can get there.

It would be a tragedy if thousands of workers are let down because the government is at this very moment too inward looking – given its resignations and reshuffles – to focus on efforts to restructure and help what can be a successful firm in the future.

End of the road, or an electric future?

1993 LDV's parent, Leyland DAF goes bankrupt. Managers buy out LDV for £8m with backing from venture capitalists 3i.
2000 Daewoo, LDV's South Korean partner, goes bankrupt, delaying launch of its new van range, the Maxus.
2001 Volkswagen in discussion on a 50 per cent stake, but talks stall.
2004 Maxus van launched to critical acclaim, winning the Professional Van and Light Truck Magazine "Van of the Year 2005" and awards since, including "Van of the Year", "Minibus of the Year" and "Combi of the Year".
2005 Sun Capital Partners, a US investor, buys LDV out of a pre-pack administration. 3i sell out their stake.
2006 GAZ, the Russian automotive group, buys LDV from Sun Capital
December 2008 LDV suspends production as the double whammy of recession and credit crunch bite
February 2009 MBO team asks the government for a loan of £20m to £30m to restart production
March 2009 Loan request cut to 4-5 million as GAZ say there is no more cash but LDV talks to possible foreign investors. Westar emerges as possible buyer...
May 2009 LDV avoids administration after Westar emerges as a potential buyer. A government bridging loan buys time for due diligence to be completed.
June 2009 Government loan stopped after Westar is unable to find financial support. LDV applies for administration.

Professor David Bailey works at Coventry University Business School.

Fight to Defend the Social Economy and the Rights of the Car Workers!

Fight to Defend the Social Economy and the Rights of the Car Workers!

The First Quarter Results of BMW

For Your Reference

Our Vanishing Van Industry