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On November 30, 1980, Lauchlan was elected leader of the Manitoba Liberal Party, defeating Hugh Moran by 493 votes to 300. The Manitoba Liberals were in a precarious position in this period, holding only one seat in the provincial legislature (that of June Westbury, who replaced Axworthy in the by-election).
With the electorate polarized between the Progressive Conservatives and New Democrats, the Liberals were unable to present themselves as a viable alternative. In the general election of 1981, Lauchlan finished a poor third in the riding of Wolseley and the Liberal Party was eliminated from the legislature for the only time in its history. Lauchlan resigned as party leader in 1982.