Good in parts was not good enough

The announcement by Lucas that it is talking to the American group Varity about a merger sent its shares bounding up last week. Analysts agreed that automotive component companies had to get bigger because that was what manufacturers wanted. The deal, they say, would make strategic and financial sense.

It may be that this particular deal does not come off. But analysts - and outgoing Lucas chairman George Simpson - believe the days of Lucas as an independent British engineering company are coming to an end. Whoever Lucas joins up with, it is unlikely to be in the driving seat. In other words what was once one of the biggest car-component companies in the world is drifting the way of so much of British industry - into the hands of someone else.

Britain can ill afford to lose another large engineering group. There are precious few left: British Aerospace, GEC, Glynwed, GKN, Lucas, Rolls- Royce, Siebe, Smiths Industries, TI Group, Vickers. Who else? There certainly are bigger engineering companies quoted on the London Stock Exchange but they have names like Daimler-Benz, Honda and Volkswagen.

The story of Lucas is a particularly sad one because its aims and some of its actions have been admirable. It was in the vanguard of the drive towards Japanese-style manufacturing systems in the Eighties. It was always looking for hi-tech niches, and was (and is) a world leader in several fast-growing areas. It has also avoided the new British disease - an acute allergy to innovation and investment.

Until the early 1980s Lucas had all the strengths and weaknesses of a typical UK engineering group. For the previous 90 years it had grown great on the back of the motor industry - Lucas headlights and electrics were essential features of the great British motor car. It also picked up a reputation for shoddiness. In the US it was known as the Prince of Darkness. In the 1970s the company was hit as badly as anyone by the old British disease - strikes. And in the manufacturing recession of 1980-81 it came perilously close to collapse, surviving only by firing 10,000 people.

In the aftershock of that recession, the management pulled up its socks. It brought in John Parnaby, an expert on Japanese manufacturing. And it drew up a recovery plan designed to bring every subsidiary up to international standards. If that was not possible, the business would be sold. It also moved up-tech. Out went the traditional car lighting business; in came a number of specialist niches. Some of these, such as diesel-injection systems, were developed in-house. Others, notably aerospace equipment, were bought in, mainly by buying US companies.

While the world economy expanded in the late Eighties, this all seemed fine. The City saw that Lucas was using the right buzzwords ("niche" and "internationalisation") and gave it its blessing. In retrospect, however, it was heading off on a foolish goose chase. By the mid-Eighties it was already apparent that the British car industry was going to rebound, thanks to Japanese investment. Lucas also had a strong presence in Germany. Had it concentrated solely on vehicle components it might well have been able to hold its own against Bosch and the other giants.

Instead, it poured money into aerospace, which was heading towards post- Soviet meltdown. Worse, following the fashionable "don't invest in the UK" dictum, it had bought a ragbag of American companies that was infested with worms. The worst of these was a helicopter gearbox factory where, it emerged, the management was fiddling

with helicopter gearbox

plans without asking its customer, the US Defense Department. A high- profile FBI raid was followed by a large and embarrassing fine.

Despite Dr Parnaby's efforts, Lucas's productivity remained low. Acceptance by middle management of his manufacturing techniques was patchy, to say the least. And when the early Nineties recession arrived, Lucas's profits collapsed. The chairman, Sir Anthony Gill, refused to cut research and development

spending, believing that Lucas could not afford to lose its technological edge. He was right, but he failed to convince the City, and Lucas moved sharply up the takeover target list. Sir Anthony's credibility was further battered when he lost a finance director and fired the man he had designated as his successor.

Lucas found it difficult to tempt a successor to join when Sir Anthony retired. Eventually, it scored a coup by bringing in the highly regarded George Simpson from Rover Group. Unfortunately, he seemed unable to bring much more order to the group and is now switching again, to GEC. Rumours were flying that John Towers, who had suddenly resigned from Rover, would move to Lucas, but these were overtaken by the Varity news.

Lucas-Varity, if it is formed, will undoubtedly be a strong company. It will benefit from the investment the British group has continued to pour into areas such as diesel engine technology. But it looks as though it will sell off its aerospace operations, and it has received scant reward for putting so much effort into manufacturing efficiency.

Students of British industry can only throw up their hands in despair - a company like Lucas, with a great name and excellent technology, should surely be able to prosper on its own. But it has thrown away the chance.

By rushing off on a faddish acquisition trail rather than building technology in its own area it has become the umpteenth British hare to be outpaced by steady foreign tortoises.