MG Rover has confirmed it is in the final stages of agreeing a joint venture with Shanghai Automotive Industry Corporation (SAIC), which is injecting around £1 billion into the deal. If successful, the deal could secure the future of the historic Rover brand and pave the way for other Asian automakers to break into the mature markets of the West.
In exchange, MG Rover has agreed to give the joint venture control of its vehicle engineering and design rights. The joint venture will be 70% controlled by SAIC, though the deal has yet to be agreed by the Chinese government, owner of SAIC. However it is expected to be formally concluded early next year.
Since being sold by BMW, MG Rover has not been able to break even and its brands, Rover and MG, have hardly featured in the top 10 sellers in the UK car market. The agreement will give the manufacturer a much needed cash injection, enabling it to replace old models, which will improve its brand image and hence customer appeal. SAIC, on the other hand, will gain a solid base to establish itself in Europe, including access to old BMW technology and a good European retail network.
As shown by its recently-completed purchase of South Korea's Ssangyong Motor, SAIC is seeking to open up to the overseas market. Chinese government restrictions on lending to the automotive sector have previously prevented Chinese domestic car manufacturers from acquiring core technologies to develop new models and compete in overseas markets.
SAIC aims to become one of the world's top six car manufacturers by 2010, but to accomplish this it will need to make major strides towards creating both a brand and a product range that can make a significant impact in markets distant from its native China. The Rover tie-up is clearly a step in the right direction.
This joint venture could also herald greater expansion opportunities for other Chinese car manufacturers. Currently, these players lack a network and brand image to target the European market. However, if the Rover-SAIC deal proves successful, it could be the first of a plethora of similar agreements.
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