Trouble at Rover?


On 9 May last year (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 in Rover itself and its component suppliers.


The story was that Phoenix bought Rover from BMW for £10, but in reality Rover came with a large dowry of unsold cars, an estimated 60,000 in all worth around £600m, plus a £500m interest free loan which doesn’t have to be repaid for 50 years.  In addition, BMW paid the cost of moving Rover 75 production from Cowley to Longbridge.  (This has now been completed and Rover 75 production has restarted at Longbridge).


For the next six months the Rover story disappeared from newspaper front pages.  In October it emerged that Rover is in dispute with BMW about the size of the dowry (see Guardian, 18 October 2000).  Since the value of the 60,000 cars handed over in May had fallen substantially since, Rover is looking for an extra £150m from BMW to compensate.  BMW is not playing ball on this.


Rover is also in dispute about the engine plant at Longbridge (known as Powertrain), where all of Rover’s power units are made (plus some for Land Rover, which is now owned by Ford).  This engine plant is still owned by BMW, a matter which wasn’t mentioned in the euphoria of last May.  Rover hopes to buy it in the near future but BMW say that Rover is only one of a number of potential buyers, in which case real money will be required to secure it, not just a tenner or two.  Although presumably Rover have a contract for the supply of engines which will continue no matter who owns the plant, the lack an engine plant of their own would restrict future developments.


Falling sales

Meanwhile, Rover sales continue to fall.  Rover’s share of the UK market in the first 9 months of 2000 was 4.7%, compared with market leaders Ford with 16.9 %, followed by Vauxhall (13.4%), Peugeot (8.5%), Renault (7.2%) and Volkswagen (6.5%).  To put this into perspective, in 1994 when Rover was bought by BMW, its UK market share was around 12%.   Rover’s European market share in the first 9 months of 2000 at 1.4% was lower than Skoda, the Czech car maker which used to a standing joke but has been now revitalised by Volkswagen.


Rover’s stated ambition is to produce around 200,000 cars a year, a very small number indeed when you consider the following numbers (in millions) for the top 10 world car making groups in 1999:


1          8.4        General Motors (including Vauxhall, Opel, Saab)

2          8.0        Ford (including Jaguar, Volvo, Aston Martin)

3          5.7        Daimler/Chrysler (including Mercedes)

4          5.0        Toyota

5          4.8        Volkswagen (including Audi, Skoda, Seat)

6          4.6        Renault/Nissan

7          2.5        Peugeot-Citroen

8          2.4        Honda

9          2.0        Fiat

10         2.0        Hyundai


Consolidation has been the name of the game amongst world carmakers in recent years, principally in order to spread development costs across a larger number of cars.  Clearly, Rover needs a partner for the development of new models if it is to survive at even the very modest production levels being talked about.  Alternatively, it needs to be bought by a major carmaker.


Apparently, the Government had the good sense to approach leading car makers last March, when the crisis surrounding the company erupted, in the hope that one of them would be interested in acquiring Rover.  At the time, Ministers were alarmed that the London venture capital firm Alchemy, which first agreed to take Rover from BMW, would strip the British firm's assets to the bone.  They were desperate for a more attractive alternative, which would preserve “volume” car making at Rover, but they got no takers.


Proton: a partner for Rover?

The Malaysian carmaker Proton is now being talked about as a possible partner for Rover in the development of new models.  The “experts” have scorned Proton as not being a worthy partner for Rover, since it is a low volume producer – it has one plant in Malaysia capable of turning out about 250,000 cars a year – and it has never developed models of its own but based its models on ones developed elsewhere, latterly, by Misubishi.  In 1994 before it was sold to BMW, Rover was in negotiation with Proton to supply it with the Rover K-series engine.  A letter of intent was agreed, and the Rover executive who signed the letter in Kuala Lumpur was the chief executive, John Towers, who is now back in charge.


However, Proton is the Malaysian national carmaker, publicly owned and with a good hold on its home market, unlike Rover in the UK.  And as long as Mahathir Mohammad remains in charge that is likely to continue.  Ford and General Motors have both tried to buy it in recent years but Mahathir told them to get lost, saying: “We are not about to sell Malaysian Inc”.   Sharing development costs over 400,000 cars a year is better than 200,000.  But not much better.



March 2001