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