DAF skids off the highway: Michael Harrison on why its British truck plants are teetering on the brink

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TWENTY-FOUR hours after DAF had stunned the European motor industry by calling in the receivers, Peter Stoof, a Dutch haulier and evidently patriot, took out an advertisement in Algameen Dagblad, the financial daily, urging his countrymen to keep buying the company's products. The ad appeared at the bottom of the deaths column.

Should Mr Stoof's exhortation turn out to be the epitaph for the Anglo-Dutch truckmaker, history will record that the fatal blow had been struck two days earlier.

Last Monday morning, an ultimatum was despatched from DAF's Eindhoven headquarters to the Amsterdam offices of ABN Amro, its principal lender among a 10-strong consortium of international banks.

The message was stark: unless DAF's bankers agreed to support a short-term 150m guilder ( pounds 57m) loan by 5pm that evening, the company would have no choice but to seek court protection from its creditors.

Although the ultimatum had been delivered to Amro, it was really directed towards the City of London. National Westminster, Lloyds and Barclays were by now adrift from the other banks in refusing to approve the bridging loan unless they were given more time to study a proposed 1.5bn guilder medium- term restructuring of DAF's sagging balance sheet.

The three British banks refused to blink. As soon as the response reached Cor Baan, the DAF chairman, it was clear what had to be done.

DAF's other backers, the Dutch and Belgian governments, had already warned they would brook no further delay in the tortured negotiations to rescue DAF - a process that had begun as long ago as last March. The following morning, DAF went to the courts and the Dutch parent called in the administrators.

A day later, receivers were appointed to the UK arm, Leyland DAF, putting the jobs of 5,500 direct employees and thousands more in component supply industries on the line.

The company that had rescued the state-owned Leyland Trucks from oblivion and losses of pounds 2m a week now found itself on the rack, with total indebtedness of 3bn guilders.

In a spasm of recriminations hardly designed to engender European harmony, the politicians blame the banks for DAF's plight, the banks blame the management and the management blames the recession.

In truth, all four have played their part in bringing Europe's sixth largest commercial vehicle group to the brink of extinction.

In 1987, when Leyland Trucks was offloaded into a joint venture with DAF, it seemed that an answer had been found both to the problem of overcapacity in the truck industry and the UK Government's desire to rid itself of a perennial loss-maker.

The merger cost 2,600 UK jobs and the write-off of pounds 680m of taxpayers' money, but it seemed to set the enlarged group on the path to prosperity. Production of the Leyland and DAF ranges, stretching from the lightweight Roadrunner to the 11.6-litre F95, would be split between Eindhoven and Leyland in Lancashire, with vans produced at the former Freight Rover plant in Birmingham.

Over the next three years, DAF went from strength to strength. Profits virtually tripled from 63m to 172m guilders, production rose to just under 60,000 trucks and vans, DAF landed the plum pounds 155m Ministry of Defence contract for military trucks, and its pounds 370m stock market flotation in June 1989 was a glittering success. In first- day dealings, DAF shares, priced at pounds 13.17, roared to a pounds 4 premium.

In retrospect, DAF achieved its listing just in time. Three months later, the British truck market went into freefall, plunging by 20 per cent in the final quarter of 1989.

For Leyland DAF, which relied on the UK market for more than a third of its sales, it was an unmitigated disaster. Between 1989 and 1991, the UK truck market declined by 54 per cent to 32,000 units and it slipped further last year.

DAF, with its 25 per cent share of UK truck sales, was strongest where the market was weakest. On the Continent, meanwhile, where sales held up better, DAF faltered: its market share fell from 9.5 per cent in 1988 to 7.6 per cent in 1991. Nor did the company have the critical mass to support its extensive product range, its sales being barely a fifth of those of the market leader, Mercedes-Benz.

The company was on the run and the signs began to show. Since 1990, nearly 4,000 jobs have gone and production has been cut as profits turned to losses of 228m guilders in 1990 and 394m guilders in 1991.

The problems go further than trading losses from manufacturing operations and the hefty provisions for the redundancy programme. DAF Finance has been a particularly black hole, accounting for 1bn guilders out of the 3bn guilders debt. The division's job was to fund the sale or leasing of trucks and vans to customers. But the depth of recession in the UK meant that vast numbers of these customers were themselves collapsing into insolvency before DAF could be repaid.

Can DAF be saved? The portents are not good. According to Coopers & Lybrand, one of the accountancy firms brought in last year to advise on the company's survival plan, losses last year exceeded 800m guilders, including provisions against restructuring, and DAF would need to raise a further 1.5bn guilders in new finance in the next three years.

What hope there is of rescuing at least some of the group almost certainly lies in unravelling it first.

As the administrators and receivers court the bankers and politicians, it has become clear that there is a will on the part of the Dutch and Belgians to salvage DAF's operations on the Continent.

At the British end, Leyland DAF possesses one of the most modern truck plants in Europe, has a low-cost labour force and is sitting in the middle of DAF's biggest market. The UK is one of the few European truck markets likely to grow this year; sales in January were up by 4.4 per cent.

But who would buy it? Rival European truckmakers have already been courted to no avail and would probably prefer to see the excess capacity represented by Leyland removed from the market. Meanwhile, the Japanese - the only realistic non-European suitors - do not have a reputation for buying established 'brown field' sites.

The joint receivers, John Talbot and Murdoch McKillop of Arthur Andersen, believe at least half the business can be saved. But with overcapacity still a significant problem throughout the industry, the Dutch apparently determined to save their own truck industry without regard for British jobs, and the banks aghast at the financial numbers involved, there is no guarantee that Leyland DAF will survive the spring.

(Photograph omitted)

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