MG Rover

MG Rover

It is all very well for the Department of Trade and Industry, or whatever it calls itself this week, being wise about MG Rover after the event. How much better had it been wise beforehand. It was obvious six months ahead of the April 2005 collapse that the company was coming to pieces. Here is what I wrote in November 2004.

Scotland on Sunday Motoring by Eric Dymock, 28 November 2004

MG Rover and China

Nearly everybody wants MG Rover to thrive. There are too many jobs, too much industrial prestige at risk, to allow loose talk. Yet the euphoria that greeted last week’s news of a billion pound Chinese investment is fraught with peril. Put it this way, if I was a senior executive at MG Rover, and wanted to find a scapegoat for its collapse next year, an inscrutable Oriental government would look tempting.

The groundwork has been laid. Dire warnings that MG Rover is not viable without a major partner have been widely aired. The company admits that without the Chinese deal it has no future. It is so short of cash that its research and development budget is the lowest for decades. It has no new models anywhere close to production. Sales from the group, the rump of the British Motor Corporation that once had 30 per cent of the British market, have sunk to around 3 per cent.

In November its auditors Deloitte drew attention to the problem. The company’s parent Phoenix Venture Holdings could only be considered a going concern because it had assumed that a deal with Shanghai would provide money for the development of new models. “In forming our opinion we have considered the adequacy of the disclosures,” said Deloitte. “These relate to the satisfactory completion of negotiations with Shanghai Automotive Industry Corporation (SAIC), which may supply additional sources of finance. In view of the significance of this uncertainty, we consider this should be drawn to your attention.”

What an opportunity. If SAIC’s owners, the Chinese authorities, refuse to ratify the deal the Birmingham Four who own Rover can say: “The game’s up but it wasn’t our fault. A big boy said he was going to give us money and then ran away.”

Shanghai is already counselling caution. The industry was more sceptical than British newspapers following the announcement, carefully arranged for a Saturday, that billions were on the way from China. Suspicions were raised that once again MG Rover was buying time by claiming it was all over bar the shouting. But the small print spoke louder It was clear that the deal had yet to be agreed by the Chinese government. Rover maintained this was only a formality and approval was arranged for January or February.

SAIC’s response was: “The programme of the deal is still under discussion and we still have to talk about many details. We read in the British press that we are going to invest £1billion into Rover, but it’s not like that, that’s not how it works. We need government approval for a project like this, and we’re not used to the British custom of going to the press, as this would cause inconvenience with the government. If the British press say one figure, then we hand a report to the government with a different sum, then it’s a problem for us.”

You can bet your life it’s a problem. But it is nothing like the problem MG Rover is facing. Moreover betraying incomplete negotiations to the press is not customary at all, despite what MG Rover may have told SAIC. Not only have Rover sales collapsed; its directors faced such criticism over their featherbedded pension fund that they had to scale down its payments. Desperation over new model announcements has reached fever pitch. Concept cars, plans, projects, coupes, and racy never-to-be-produced sports saloons have earned plenty of column-inches in an uncritical motoring press.

The aim of the publicity is not to sell cars, so much as convince creditors, suppliers and the SAIC that MG Rover is a viable vigorous company. It is a chimera. Rover engaged one of the best stylists in the business, Peter Stevens, to produce stunning new designs. Some of his MGs, based on old Rovers, have found buyers. Yet the failure to sell sufficient numbers speaks volumes. The customers are not convinced. Some Rovers like the 75, designed under BMW’s tutelage, are outstanding bargains yet they are scarcely profitable.

We have been down this road before. Likely partners in rescue plans have been paraded ever since BMW backed off in May 2000. Proton of Malaysia, China Brilliance, even Tata of India which produced the lacklustre City Rover have all been rumoured or announced as likely investors for the hundreds of millions needed. New cars have been under development, notably by the talented but in the end failing TWR Group, led by the ultimately unsuccessful Scottish former racing driver Tom Walkinshaw.

The question is whether China needs to spend a billion on MG Rover when BMW, Volkswagen, Ford, Honda, and Citroën are queuing up to spend billions inside China. General Motors’ joint venture plant in Shanghai, built in 1997 with inward investment of $1.5billion, was planned to make 100,000 cars a year but has had to add extra production lines and double-shift working to meet demand. VW will build one assembly plant and two engine factories to double capacity from 800,000 to 1.6million by 2008.

VW has been in China since the 1980s and will spend €5.3billion on its expansion in partnership with the same SAIC with whom Rover has been negotiating. Shanghai has no need to reverse such a cash flow, and spend money on a small time outfit like MG Rover, which uses out of date technology to build cars well past their sell-by date.