It's taken two years for common sense to prevail over MG. Finally, the brand is owned by SAIC, which unlike Nanjing Automobile has the resources to do something about it. But is it too late, asks Mark Bursa

As expected, China's biggest carmaker has taken control of China's oldest. The news that Shanghai Automotive Industries Corporation (SAIC) was 'merging' with Nanjing Automobile solves two problems for Chinese authorities - it sorts out the mess over MG Rover and allows China to take a much-needed step toward consolidation.

In the deal, SAIC has paid USD287m to Nanjing Auto's parent, Yuejin Motor, in exchange for the vehicle and core auto parts assets of Nanjing Auto, while in return, Yuejin Motor will receive 320 million SAIC Motor shares, equivalent to about 5% of the listed company.

The Rover situation has rumbled on unhappily for nearly two years now, since receivers were called in at the cash-strapped UK automaker. And PricewaterhouseCoopers (PwC), appointed to sort out the collapsed company, effectively caused the mess by taking the decision to sell the assets of the business to Nanjing - when SAIC had already acquired almost anything of value in terms of intellectual property rights long before the company went bust.

Why PwC chose this action remains unclear - it seems the receiver simply went with Nanjing because its paper bid was higher than SAIC's. At the time it was reported that SAIC had perhaps not understood how UK receivership works, but clearly the onus was on PwC to explain the issue properly and make the best deal to allow MG Rover to go forward.

This didn't happen. Nanjing clearly didn't have the resources to restart MG Rover production in the UK. A farcical 'relaunch' was staged at Longbridge last year, with built-up cars arranged on a false 'production line'. Such a charade might fool the Chinese media - who might also appreciate the revelation that MG would stand for 'Modern Gentleman' - but to UK media and enthusiasts the message was clear, Nanjing was out of its depth, and floundering.

The MG TF should have been relaunched in August 2007 - Nanjing had already put the launch back to March 2008 before the SAIC deal went through, citing logistical problems including high levels of breakages in shipping parts from China.

Indeed, Nanjing's problems weren't just confined to MG. Back in China, its only foreign JV, with Fiat, was going nowhere, and coming in for stiff criticism from Fiat Auto CEO Sergio Marchionne. "I'm fundamentally displeased with the level of interaction with Nanjing on the passenger car project," he told reporters last May. Marchionne blamed Nanjing's acquisition of MG as a major cause of the problems: "They have been distracted by other brands that are of no interest to us," he said.

Sure enough, by December Fiat had exited its Nanjing venture, which had been designed with a capacity of 100,000 units but only built around 30,000 cars a year. In its place, Fiat has set up a wide-ranging JV with Chery, the rising star of the Chinese auto industry, which encompasses Chery building a range of Fiat and Alfa Romeo cars, and Chery supplying its own engines to Fiat.

So what has actually happened? The 'merger' effectively gives SAIC the one asset it did not acquire - the MG brand. The lack of a brand had prompted the creation of the Roewe brand - laughable to Brits, but plausibly British to Chinese eyes. SAIC is sailing close to the wind with Roewe. It cannot use the Rover name as BMW has now sold it to Ford - which will presumably sell it to Tata along with Land-Rover and Range-Rover.

More to the point, Chinese people cannot say 'Rover'. The sounds "ro" and "ver" do not exist in the Chinese spoken language. The nearest equivalents are "rong" and "wei" - and Roewe is a contraction of these sounds. As exporting a car that sounds like "wrong way" is not an option, it's likely that Roewe will have a short existence. SAIC sold 16,000 Roewe 750 cars, its version of the old Rover 75, in China during 2007 - hardly earth-shattering.

MG will certianly be the export brand, but Nanjing had acquired the rights to a number of former British Leyland brands, and these rights have now passed to SAIC: the Wolseley, Austin, Morris, Vanden Plas (outside the US and Canada), American Austin, Princess and Sterling nameplates are all available to SAIC.

In the past, Austin has been mooted as an option for Chinese territories. The brand has some history in Asia, and therefore a reputation that carries no negative connotations (rather like Buick within GM). Morris or Sterling - best remembered as Rover's short-lived late-'80s US launch - might also be revived. Any would be a marked improvement on Roewe, with its hokey faux-heraldic logo.

What happens next? First there needs to be some consolidation of the various Nanjing/SAIC manufacturing facilities that have started building ex-Rover cars. Secondly, the revival of Longbridge will belatedly take place. SAIC's statements make it clear how importantly it views this small European foothold.

"The UK business is vital for SAIC to enhance its multinational operations competence. There will be a further input of resources into Longbridge." Initially this will involve a restart of production for the TF roadster, followed by unspecified "other new MG products", which could include the finished-but-never-built TF coupe derivative. In 2006, Nanjing signed a 33-year lease on part of the Longbridge plant - though much of the site is already being redeveloped for non-automotive use.

However, relaunching any of the Rover sedan or hatchback ranges may prove more problematic. It is two years since the Rover collapse, and it will take at least another two to re-establish distribution in Europe. And Rover's old ranges - 25, 45 and 75 - are already quite old. A decade has passed since the 75 was unveiled, while the 25 and 45 are even older. The 45 is based on Honda technology - and Honda would probably veto any attempt to sell it.

A replacement for the 45 - project X60 - was well under way at Rover before the collapse, but the project has not progressed in the past two years and it may never emerge. So the old Rover models look unlikely to return - though they will be churned out in China for domestic consumption, probably using Nanjing's plants.

According to the "cooperation agreement" signed in China by Nanjing and SAIC: "The long term objective of the cooperation is to build SAIC into China's largest automaker with global competitiveness while [developing] Nanjing into a leading manufacturing base in China."

This suggests that Nanjing will build all the ex-Rover models. It does own much of the original production equipment from Longbridge, and the company had managed to set up a new 290,000sq m MG factory in the High-level New Technology Economic Development Zone in Pukou, a district of Nanjing. This is designed to have a capacity of 200,000 cars, 250,000 engines and 100,000 gearboxes. Production of the MG 7Z - formerly the ZT, the MG-brand version of the Rover 75 - started at Pukou last year, though volumes have been small.

Indeed, SAIC intends to plough USD1.2bn into Nanjing Automobile over the next three years, boosting its capacity to 500,000 units by 2012, according to the Beijing News. However, the Chinese newspaper includes Fiat production at 150,000 in this forecast - and that won't happen now Fiat has pulled out. Nevertheless, SAIC wants to build 200,000 MGs and 250,000 Nanjing-brand commercial vehicles as well.

Will it work? To an extent, yes. The deal gives SAIC a ready-made own-brand product range that might not be the newest technology on show, but it's now 100% owned by the company - unlike the GM and VW cars SAIC also builds.

And in MG SAIC has acquired a workable export brand with some history - though it needs to proceed with caution. MG works as a niche brand, not as a volume brand. Owning it means SAIC does not have to enter the European market as a budget brand - it can come in as a specialist niche sports car player - aiming for Porsche, not Proton, levels of profitability.

The question remains - does SAIC have the cultural nous to make a brand with such a rich history and subtle image as MG work?


See also: UK/CHINA: No UK start date yet after SAIC/Nanjing merger