Part One from 'Cork on Cork' relating to DeLorean
Just before I began my stint as Lord Mayor of London a proposal was put to the Northern Ireland Development Agency of which I was unpaid chairman - I had declined the Government's offer of 10,000 a year to leave myself free to tell them whatever I felt - that we should deal with a Mr John Z. DeLorean, an American who was trying to find a site for a factory in which to manufacture a two-seater sports-car he had designed. One of the places he had been looking at was Northern Ireland. NIDA looked at it and said No. We came to the conclusion that it was not a project we should support. He would have to form a company in Ulster and it would be a subsidiary of his holding company in the United States which held the sole distribution rights for the car and was wholly owned by John DeLorean. So the Ulster unit would be purely for manufacture, and every car it produced would have to be 'sold' to John DeLorean's American company. So we in Britain would have no control of what was happening in America, nor any financial hold on the DeLorean Motor Company Inc, the Michigan corporation - though it was shown later that we could have done.
So, taking my informal advice, NIDA decided to take no action. In fact my advice was the wrong one. The factory built at Dunmurry, West Belfast, and the company which owned it DeLorean Motor Company Ltd, could both have been successful The British government had faith in the project and decided to finance it. As part of the package, John DeLorean agreed to have two British directors on the board of his Michigan corporation to represent British interests, but the British government would no more have insisted on having a financial stake in it than they would have in Monsanto or any of the other big international groups whose subsidiary companies they were glad to have operating in Northern Ireland. This was the way the officials in the Northern Ireland Office were geared. For them the DeLorean Motor Company was just another operation of a type which had already proved profitable for all concerned. At this time, however, it was inadequately financed, a circumst,mce which unfortunately escaped their notice. Moreover the Michigan corporation was completely under-capitalised and had no business other than to be the head office of this manufacturing subsidiary in Northern Ireland.
The first winter after the Dunmurry car factory went into commission, sales of the vehicle in America went splendidly. There were the inevitable few engineering problems to start with, and the workforce, which had been carefully trained by former Chrysler experts, were on a1earning curve'. But soon the whole unit began functioning exactly as prescribed, and John DeLorean saw all his dreams coming true. He had already taken as much money as he could out of his Michigan holding company to set up the unit in West Belfast, so his plan now was to 'go public'. In optimistic mood promoted by the high ArAerican sales, he engaged another thousand men for the factory and threw them into the assembly-lines. But, unlike the original expertly instructed team, none of them was properly trained. So, though production doubled, many more cars left the factory with faults which had to be sorted out in Michigan before they could be sold. At the same time a freeze-up seized America, and sales fell right off. A sports-car became low priority, a fast toy for bright young men but hardly a necessity at a time of a winter freeze. The $30 million credit with the American bank ran out. The Belfast factory produced another $10 million worth of DeLorean cars to be paid for by DeLorean Motor Company, to find, however, that their sole customer had run out of money. Asked to grant extra facilities, the bank took over the documents in anticipation of doing so, but in view of the declining sales thought better of it. The bank held on to the documents as additional security for the money they had already lent John DeLorean, but offered him no more. Where was the cash coming from to pay the Northern Ireland staff, the electricity bills, the component suppliers? It was this very serious crisis which led James Prior, who had taken over as Secretary of State for Northern Ireland, to enlist our help.
Jim Prior was a good friend of mine and he knew of my connection with the province through my chairmanship of the Northern Ireland Development Agency which had brought me a good understanding of the manufacturing scene there. Since there had been criticism of the British government's behaviour in Ulster, he wanted someone known for his reasonable independence of view to advise them on what to do next.
Cork Gully's brief was to do an investigation into the DeLorean set-up in West Belfast and declare whether in their view it was capable of surviving. Was it something the British government would be justified in putting more money into?
Coopers & Lybrand did the major part of the investigation with a management consultancy team. Through their American connections they reported on the marketability of the car in the United States. They went through the manufacturing process at West Belfast with the proverbial fine-tooth comb. They sent staff to DeLorean's depots on the west coast of America and the east coast. It was an extremely valuable and thorough report, and it was completed in three weeks.
I was made the special adviser to the Government. The Northern Ireland Office told me that DeLorean was over here and wanted to see me. I was also told the only time he could fit me in was for breakfast at 8 a.m. the next day at the Connaught Hotel off Grosvenor Square where he was staying (at British government expense) before leaving that evening for the States on Concorde. I told his office that I lived at Great Missenden, some way outside London, and that it would be difficult to get in by eight in the morning; I was more used to people coming to see me than my going to see them. However, they hinted that Mr DeLorean was a Very Important Person, and could I stretch a point and be there? Which I did.
I managed to arrive dead on eight, and he swept into the room with three of his henchmen dead on half-past. He made no apology for keeping me waiting, but I suppose it never occurred to him. He was immaculately dressed with an extremely commanding presence, and had the air of an exalted Person of Importance irked at having had to put up with a lot of incompetent civil servants and their minions whom someone of his eminence should never have been asked to deal with in person. The day before he had had a session with Jim Prior and his advisers who, in spite of having backed the project in Northern Ireland initially, had told him they were unlikely to continue their support. The Secretary of State's instincts led him to believe that things had now gone too far.
DeLorean will have dined on that unwelcome piece of news the night before with his colleagues who were now attacking the Connaught's English breakfast. The two main ones were Roy Nesseth, to whom I took an instant dislike, and Don Lander, the nice Canadian who was managing director of the Irish company.
'Well, Sir Kenneth,' began the Great Man when we were all settled round the table, 'I want your advice.'
'Yes, Mr DeLorean?'I said guardedly, not knowing quite what to expect.
'I'm going to sue your government for fifty million dollars. Should I do it before or after you write your report?'
I was rather flattered by this, as presumably he assumed I was a man whp would be frightened by $SO million, and smaller men by a smaller amount. But it was too early in the morning to think of an appropriately bright but snubbing riposte.
'Well, Mr DeLorean,' I said, 'it depends on how much money you've got.'
'What's that got to do with it?'
'Well. You're going to lose your money eventually. But you will keep it a little longer if you sue after my report.'
There were no more would-be clever remarks after that.
When he read our report a few weeks later he learnt that it was our belief that, in spite of increasing faults having to be corrected in America at great expense, the car was saleable. A turnover of 8,000 cars a year for sale in America was justified, but no more. In additiorr he might sell another 1, SOO in Canada and ultimately some 2,000 in Europe. A major drawback was - and is - that the cars were made to run on lead-free petrol, which was only found in America at that time. There would have to be an expensive 'homologisation' exercise on cars for Europe and to fit each country's different specification.
In the circumstances, we said, it would not be right for the British government to refinance the DeLorean subsidiary company in Belfast. It had now accumulated debts of jG60 million. The only thing we had a charge on in Britain was the factory plant and machinery and the stock of work in progress; the dealers with their stocks of high-priced cars were in America. We recommended that the British assets be sold to a newly created organisation,'DeLorean Motor Cars Ltd 1982', which would take over existing management together with ownership of the distribution rights in America. DeLorean did not agree to this. In no way, we said, should the Government continue to finance a unit which was a subsidiary of a foreign holding company which itself was now in financial trouble. The bank had cut the line of credit, and an insolvent corporation in Michigan would not have the wherewithal to undertake distribution.
Acting on the advice in the report, the British government decided that the DeLorean Motor Company Ltd had no chance of survival and intended to appoint a receiver. Jim Prior summoned John DeLorean to London to tell him what that implied. Though probably not fully aware of what a receivership meant in Britain, John DeLorean knew it would be humiliating, a nd set his mind to prevent it with all the energy he had poured into creating his car. He commissioned accountants Peat Marwick to produce his report on the situation. This showed that all talk of receivership would disappear if he could lay hands on a mere Z20 million. So he set to work. Tiny Rowland of Lonrho? No, sir. The 'head of an Arab state'? Who knows? An American on the West Coast? Maybe. He was clearly a drowning man clutching at straws when in all the confident affluence of a onnaught suite he desperately tried to impress me with the 'certainty' of at least one of these hoped-for last resorts coming to the boll.
The climax came when James Prior and I confronted him at the Northern Ireland Office in Whitehall in the middle of February 1982. It was a fraught meeting. We insisted that he ask for a receiver to be appointed for his Irish subsidiary. I explained to him the difference between our receivership system and the so-called Chapter I I of the Federal Insolvency Code of the United States which in due course he had to apply to his holding company in Michigan. Under the American system the proprietor stayed in possession and lawyers acted as trustees. In Britain, I told him, the receiver had absolute control in the management of the company without reference to any court. The directors could only do what the receiver wanted them to do. Though he could not dismiss them, the receiver could stop them managing. In the light of this, I think John DeLorean realised that, if a new investor could be found, a constructive receivership gave his company its only chance of resuscitation.
Though it was a blow to his pride, he could only accept the situation and submit to the remedy prescribed. But at this eleventh hour he pleaded with us to allow himJust one more chance to stave off this receivership thing which for his friends and colleagues back home could only have one meaning: failure. Once again he took off into the realms of fantasy, assuring us that it only needed time before one of the three sources he was negotiating with came up trumps. We knew about Alan Blair's Californian consortium, a non-starter if there ever was one. The unnamed'Arab head of state'had yet to turn him down; but surely there was more than a glimmer of hope in General Electric. Jim Prior, who knew its chairman, Lord Weinstock, could not help laughing. The Secretary of State then became serious and insisted that DeLorean, as chairman of the Irish company, formally request the British government to appoint a receiver by signing the letter he then placed in front of him. There was nothing he could do now but sign it. We also got him to authorise a press statement announcing the appointment of a receiver, and to assent to the text of what the Secretary of state would tell the Commons in the morning.
But - and it was a big But - he wanted to delay the appointment, so he was given a last chance to the extent of agreeing to delay the actual appointment of the receiver until seven o'clock the next morning. If before then he was able to produce the Arab money, we would tear the letter up and there would be no receivership. But at midnight I had a ca' I at Great Missenden from his solicitor in Belfast to say that all his telephoning had drawn a blank and his client was reconciled to the fact that the receivership must take its course. But the minister agreed that it was to be a 'constructive' receivership and we were to try to save the business if possible. No one wanted to close the factory if it was possible to keep it going, because of the distress it would cause in Ulster.
John DeLorean flew back to America; Paul Shewell and I as joint receivers took over the DeLorean Motor Company Ltd with its factory in Dunmurry. It was to be a constructive receivership which gave an opportunity for new investment or for the company to be sold as a going concern - in other words, our Way. It was agreed that we should continue running it at least for a limited time, not making any nevY vehicles but merely converting the 500 or so half -completed cars into finished ones. This, we reckoned, would take about three months. It would at least raise the value of the assets - unfinished cars are worthless - but without it there would be little opportunity for refinancing. If we could not get the operation refinanced or sold in that time, then that was the end. The company would be wound up and the factory closed.
Go to Part Two