In the wake of the tragic collapse of MG Rover at Longbridge it’s time to take a look at what might have been done to save the site and a substantial proportion of its experienced workforce. Yes, at several points during its troubled history this could have been achieved, writes Karl Ludvigsen.
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This isn’t to gainsay the challenge of dealing with Longbridge. According to a 1987 report it was one of the largest car-production operations in Europe. Its total area of 1.53 million square metres surpassed that of Fiat’s Mirafiori complex (1.36 million m²), Peugeot’s Sochaux factories (1.30 million m²) and Ford’s at Cologne (1.19 million m²). Supporting its operations, the company’s press plant at Swindon was the largest in Europe with 40 major press lines. Total employment at Longbridge in 1986 was 13,328 while Swindon employed 3,165 more and the central staff at Canley amounted to 2,505.
Together with Cowley, in 1986 Longbridge accounted for 40 percent of Britain’s car production. Market share was 16 percent in the UK and just under 4 percent in Europe as a whole. Both production and share were the attractions for Ford, which early in 1986 said that it would be willing to acquire the BL Group, for more than a decade a needy creature of the British Government.
This reminded me of a meeting in London in the early 1980s at BL’s offices with Michael Edwardes and David Andrews. On our side were Bob Lutz, Derek Lewis and yours truly. Our aim was ensure that if their thoughts should turn to offloading some of their properties, we at Ford would be interested. The MG owner among us, Bob Lutz, expressed particular interest in that marque, which had just wound down its sports-car production. Land Rover was obviously attractive to us as well.
Early in 1986, however, Americans weren’t wanted. On the 9th of January Michael Heseltine resigned from the Thatcher cabinet when it seemed the Government would favour an American offer for Westland Helicopters instead of the European consortium he preferred. Anti-US passions were still raging when news broke of takeover talks between BL and Ford. The Dearborn company was acceptable as a buyer for Jaguar, but not for a flagship enterprise like BL. Ford was angrily shouldered aside as a possible owner of BL and its products.
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By GlobalDataThis was a Big Mistake. There would have been job losses, simply because the opportunity was there for synergy between the products of the two companies. Ford’s marketing know-how would have helped sell BL’s products abroad, while the introduction of new models would have been assured. Two decades later would both Longbridge and Cowley have been making cars? Probably not, in a competitive Europe that’s seen Ford bow out of car production at Dagenham, but any phase-out would have been gradual with decent consideration for the workforce.
General Motors was next to knock on the door of Number 10. GM’s approach was led by one of the company’s brightest and most approachable executives, Bob Price, who had headed Vauxhall from 1971 to 1979. His interest was in the Leyland truck operations, which he wanted in harness with Land Rover. In those days a money-spinner, Land Rover was needed to provide the cash flow GM required to put the Leyland operations on a sound footing. But GM’s suit too was turned away. Belatedly, Margaret Thatcher said that she feared that “some anti-American feeling has been aroused, and I fear deliberately, in the UK about the future of BL.” The xenophobia had been rampant on both sides of the aisle; better a failing BL, it seemed, than more UK involvement by the Americans.
Meanwhile Rover (as the company and all its products were renamed under Sir Graham Day) continued the unflashy but effective and productive partnership with Honda that Michael Edwardes and his team had engineered in 1979. Their relationship seemed a win-win arrangement. Rover got the new models it desperately needed and invaluable insights into the methods of a successful car company. Honda got an important customer for its power trains and indirect access to European markets at a time when its exports were constrained by mutual understandings.
When news broke in March 1988 that British Aerospace was contemplating a Rover takeover, the Honda connection was deemed important enough for the Government’s Lord Young and leading lights from Rover and BAe to fly to Japan for talks with Honda’s president. They told Tadashi Kume in the “clearest terms” that a BAe-owned Rover would want to expand and deepen its Honda relationship. For his part, said Lord Young, Kume “made clear that he would be very concerned if the bidder had been another car manufacturer.” The fact that the Government held a golden share in BAe, the Honda president was assured, would make the aerospace company a reliable owner of Rover.
“Shock and amazement” described the reaction to the Rover purchase by BAe, which was confirmed on 14 July 1988. Much was made of the “synergies” between the two companies but analysts were hard-pressed to find any. One pundit who claimed that they were there for the asking was Prof. Kumar Bhattacharyya of Warwick University. Establishing synergy, he said, “would be fairly straightforward. There would be obviously shared interest in developing new composite materials and electronics systems.
“Austin Rover over the last few years has brought in graduates from the shop floor upwards to create a dynamic management,” an enthusiastic Bhattacharyya added. “Austin Rover has to operate in a fiercely competitive consumer market, responding to demands for design, quality and low manufacturing costs. Those are important disciplines and the company is now a pacesetter. That, combined with the sharp commercial approach of British Aerospace, has to be a recipe for success.” The Professor seems to have suspended his critical faculties to favour an alliance that would bring more money and students to his institution.
Under BAe the co-operation with Honda flourished. In April 1990 the two companies agreed to a share exchange that gave Honda a 20% shake in Rover’s car-making operations and Rover a similar investment in Honda’s new Swindon factory. The parameters of the deal valued Rover Group Limited at £520 million at the time and disclosed net assets of £1.1 billion. The deal triggered accusations that the Government had sold Rover too cheaply. More fallout came in February 1991 when an all-party committee found that £44.4 million in undisclosed “sweeteners” had been paid to BAe by the Government to help the deal go through.
That BAe’s interest in Rover was short-term and opportunistic was confirmed by Sir Graham Day in April 1991 when he hinted that the auto company might be floated on the stock market in August 1993 when it could be sold under BAe’s agreement with the Government. “You can always suggest that a company with a multitude of industrial holdings can be broken up and BAe is no different from that,” said Day. The company’s acquisition spree under Sir Rowland Smith could be reversed, he indicated, under new chief executive Dick Evans. This was an early warning to interested parties that Rover might be available.
When it did come to sell Rover in 1993, BAe made the decision that effectively sealed its fate. On the table was an exceptional offer from Honda, exceptional in the sense that the Japanese company, known for its independence of thought and action, had never before sought deep involvement with another company. Valuing Rover at £650 million, it would pay £167 million to bring its shareholding up to 47.5%. The same amount would be held by BAe, while Rover managers and employees would have a 5% stake. Provided that Rover met certain profit and cash-flow criteria, Honda promised to take the company public by 1998. “Our philosophy was to maintain Rover as an independent British company,” said Honda Motor Europe president Shojiro Miyake.
Here was an offer from an auto company that had already worked with Rover for almost 15 years and knew its strengths and weaknesses well. Honda had real synergies with the British company and a product range that could support and underpin the future of Rover. To his credit, John Towers strongly favoured the Honda proposition, as did the Dti, which saw Honda as a loyal and valuable partner of Britain’s motor industry. Against it, however, was George Simpson, Rover chairman. He and BAe’s Dick Evans felt the offer didn’t adequately reflect Rover’s book value of £1.3 billion. Nor was BAe’s ultimate exit route guaranteed. So they shouldered the Japanese aside and accepted a stunning — in retrospect — deal from BMW which, including assumptions of debt and other obligations, was worth an astounding £1.7 billion.
The last opportunity to save Rover was now on the table. “A secret clause in the Rover deal” with BMW, wrote Chris Brady and Andrew Lorenz, “provided for BAe to get an extra £20 million from BMW if, having used its good offices, the British company helped persuade Honda to stay on board.” Here was a sign of awareness on BMW’s part that it would be valuable to continue the co-operation with Honda. John Towers led meetings in both Tokyo and New York in which means were sought to keep Honda on board as a shareholder and supplier. It had the front-drive technology that Rover needed; synergies with BMW’s rear-drive cars were non-existent. But new Honda chief Nobuhiko Kawamoto was unpersuaded. Like Tadashi Kume in 1988, he was resistant to an involvement with a third car-producing party in the Rover relationship. The negotiations failed and BMW paid another £200 million to Honda for its Rover shareholding.
Lacking Honda’s help, failing adequately to get to grips with Rover’s fundamentals, BMW bowed out in 2000. Rover was now effectively over. If BMW couldn’t make it work, who could? The bid by Jon Moulton’s Alchemy lacked credibility; Chris Woodwark was propped up as the company’s putative chief, but he’s an executive whose slick presentation exceeds his ability. There’s no certainty that Alchemy’s vision of a slimmed-down sports-car company would have been viable.
Thus “Project Crufts” gave way to “Project Phoenix” in an attempt to carry on as a volume carmaker that was doomed from the start. To be fair, Phoenix-owned Rover had bad luck. It ended up with Longbridge rather than Cowley, which BMW kept, and had to move the whole Rover 75 assembly line to Birmingham. It had a joint-venture partner in the MGF in Mayflower; Mayflower went bust, leaving MG Rover holding the bag. It contracted a new-model-development project to TWR; TWR went bust. Now it’s been the turn of MG Rover.
Investigations are under way to find out “what happened to the money”. The most important question to be answered is: At what point could the Phoenix Four, well aware that their company was on the skids, have closed it in an orderly way that would have left something for the suppliers, workers and dealers? This they conspicuously failed to achieve.
– Karl Ludvigsen
Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.
