Rover saved?
On
9 May 2000, the Phoenix group took over Rover.
There was widespread rejoicing that the Longbridge plant had been
“saved”, and with it an estimated 24,000 jobs in the West Midlands. The rejoicing is premature.
For
the sake of appearances, the pretence was made that Phoenix bought Rover,
albeit for the nominal fee of £10. But
in reality Rover has come with a large dowry in the form of tens of thousands
of unsold cars, the production costs of which have already been paid by
BMW. Precisely how much this dowry is
worth has not been said and is difficult to estimate. But if as been reported several months of car sales are parked on
airports, there might be 50,000 cars, which must be worth £200-300m to Phoenix
even at knockdown prices. BMW is also
paying the cost of moving Rover 75 production from Cowley to Longbridge. In addition, it is lending Phoenix £500m.
Phoenix
now owns the Rover and MG brands and the Longbridge plant. BMW is keeping the Cowley plant where at the
end of this year or earlier next it will begin production of a new Mini under
the BMW brand.
But
the problems of Rover discussed
in last month’s Labour & Trade Union Review remain. There was a lot of rejoicing over the April
sales figures, which saw the Rover share of the UK car market rise to about
13%. This was the level it was at in
1994 when Rover was bought by BMW. By
1999 Rover’s market share had dropped to less than 5%. But this surge in sales was achieved by BMW
cutting prices to a level below the cost of production. It is understandable that Phoenix should
continue this process in the short term in order to turn the dowry it received
from BMW into cash. But selling at less
than the cost of production for any length of time is the road to bankruptcy.
The
trouble is that it may not be possible to make money manufacturing the present
ranges of Rover cars (apart from the 75 model) at Longbridge in the short term,
because of the inherent limitations of the old plant in operation there. Cost cutting there will have to be, leading
to redundancies at Longbridge itself and the sourcing of components outside the
UK, which will lead to redundancies elsewhere in the West Midlands.
Looking for a partner
But
even if by cost cutting and more effective marketing of Rover cars, Phoenix can
break even or thereabouts on car production in the next couple of years, there
remains the problem of developing new models, a process on which BMW intended
to spend £2bn. It is said that Phoenix
intend to maintain volume car production at Longbridge but the volume they are
talking about – 200,000 a year has been mentioned – is very small by today’s
standards (Rover was making 360,000 cars in 1994 plus 66,000 Land Rovers). Understandably, John Towers of Phoenix has
talked about sharing the development costs of new models with another carmaker
so that they can be spread across a larger production run.
(At
the outset, Towers seemed to be hoping to strike a deal with Honda with whom
Rover had an effective partnership prior to its purchase by BMW, when Towers
himself was head of Rover. But it has
since been reported that Honda has ruled out such a deal – perhaps because of
their bad experience in 1994, when they thought they had a deal to buy Rover
from British Aerospace. They were less
than pleased when, unfortunately for Rover, it was sold to BMW instead.)
At
the present time there is excess car production capacity in the world, and
especially in Europe. Unfortunately for
Rover workers, if car production ceased at Longbridge, there would still be
more than enough capacity to satisfy the market demand for cars. It is not the ideal time to go shopping for
a partner when most potential partners are trying to cut their own production
capacity. It doesn’t make sense to
assist a weak competitor to maintain his production capacity when you are
trying to cut your own.
Rover
needs a partner if it is to survive as carmaker at the projected levels of
production. There may be one out there
with special circumstances, which make co-operation with Rover on mid range
models a good business proposition. But
we will be pleasantly surprised if one emerges. And until one emerges it is premature to say that Longbridge has
been “saved”.
In
the past few months the news media have been full of stories about the possible
end of car production at Longbridge and the end of car production at
Dagenham. Not for the first time, the
real story has been missed.
It
is that in 1999 the UK manufactured more cars than in any year since 1972. 1,787,000 units were built last year. You would have thought the Government would
have shouted this remarkable fact from the rooftops to counteract the flak it
was getting about Longbridge and Dagenham.
According
to the Society of Motor Manufacturers and Traders, “the arrival and success of
new UK built products, such as the Peugeot 206, Jaguar S type and Toyota
Corolla” have been responsible. The
Peugeot 206 has been particularly successful apparently and the Ryton plant
where it is built is operating round the clock 7 days a week.
Labour
& Trade Union Review
June
2000