EC MART WON LEYLAND FOR DAF

Superficially, it would be easy to see the British government's approval of a merger of the state-owned Rover Group's truck and commercial vehicles operations with Daf of Holland as a slight against the United States, as only last year a sale of Leyland Trucks to General Motors was barred.

The main problem then was that GM was only interested in loss-making Leyland Trucks if its profitable sister company, Land Rover, was included in the deal.However, there was a public outcry that Land Rover, which is seen as so essentially a British company, might fall into foreign hands. The government bowed to this pressure and the GM deal fell apart.

The Daf deal also displaced another U.S. bidder for Leyland trucks.

Paccar, the U.S. company that already owns another British truck maker, Foden, was prepared to take on Leyland in order to increase its position in the European market.

But Graham Day, chairman of Rover Group PLC, said last week the Paccar offer was "totally uncommercial from our point of view."

What Leyland, which already is the market leader in trucks in the United Kingdom, really needed was a partner with a proven sales record on the Continent. Daf, although not one of Europe's manufacturing giants, meets this criteria.

No one denies that a rationalization of Western European truck-making is needed. Total capacity of the industry is some 600,000 vehicles a year, while worldwide demand is only around 400,000. But as with other industries in a similar position - such as shipbuilding and steel-making - no one wants it to be their industries that do the cutting back.

In its merger with Daf, which will take a controlling 60 percent stake in the partnership, Leyland will nevertheless undergo some rationalization .

The British government is providing around 500 million to wipe out Leyland Truck's accumulated losses and help defray the costs of some restructuring.

One of Leyland's three truck plants, Scammell in Watford, will be shut down, as will its engine and foundry plant in Leyland, Lancashire.

Daf, which is privately owned although the Dutch government has an indirect stake of 25 percent, and Leyland Trucks already have a collaborative arrangement that will facilitate their merger.

Since last October, Daf, which specializes in producing larger trucks of over 9 metric tons, has been selling on the Continent light trucks and vans up to 10 tons produced in Britain by Leyland.

Access to Continental Europe is seen as the main hope for survival for the British group.

While doing well at home Leyland Truck's mistake had been to fall into the trap of focusing its export efforts almost entirely on developing countries within the Commonwealth, and leaving the European market to the others such as Daimler-Benz of West Germany; Volvo of Sweden; Iveco-Ford, partly owned by Fiat of Italy; and RVI, part of the French Renault group.

As Britain's influence over the rest of the Commonwealth diminished and the economies of these countries weakened through such factors as the oil crisis, so Leyland Truck's export markets dwindled.

Daf, with an output of some 16,000 heavy trucks a year, complements Leyland, which produces lighter vehicles.

The merger, which was proposed to the British government by Rover Group PLC in its 1987 corporate plan, appears to provide just the answer the Thatcher government is looking for with its commitment to slotting the car group into its plans for privatizing a wide range of state-owned industries.

It is part of the plan that the merged company, which will trade under the Daf name, will be floated on the London and Amsterdam stock exchanges within two to three years.

With Leyland Trucks and Freight Rover separated from Rover Group PLC, all that will be left will be Austin Rover, its loss-making volume car subsidiary; Range Rover and Land Rover. The latter two are profitable and present no problem.

Austin Rover, through its production partnership with Honda of Japan, hopes that its recent re-entry to the U.S. market with its new Sterling model will set it back on the road to profitability.

The corporate plan approved in its entirety by the government also outlines the Rover Group's new model strategy by giving the go-ahead for further collaboration with Honda on a new AR8 medium-sized car to replace the Maestro and the Rover 200 series.

Additionally, the group will develop a new K series engine for small cars and an associated gearbox.

Paul Channon, trade and industry secretary, summed up the government's hopes last week when he said the corporate plan provides "a positive course for the continuation of Austin Rover as a major producer and leading exporter of cars made in Britain."

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