As the Phoenix consortium headed by John Towers enters into serious negotiations with BMW over the disposal of Rover cars, we examine the key issues surrounding the Towers bid. In this exclusive just-auto feature, David Leggett offers an assessment that suggests all is not lost for those seeking to maintain volume output at Longbridge. But it will not be an easy path..
The fiasco of BMW’s panicky disposal of much of its UK vehicle manufacturing assets continues to rumble on. Having kept the Phoenix bid at arms length while pursuing exclusive negotiations with the Alchemy group over the sale of much of what was Rover cars, BMW was forced to make an abrupt about-turn late last week when Alchemy unilaterally withdrew its offer. The negotiations with BMW seem to have stumbled on the extent of the liability being transferred over to Alchemy. Today, the Alchemy team has made it clear that the door is not necessarily closed. As the first serious talks between Phoenix and BMW get underway, it is hard to see BMW wanting to entertain Alchemy again. But nothing can be ruled out and one thing is for sure: BMW wants to draw a line under this unhappy affair as soon as possible and put an end to the financial losses being incurred by BMW through Rover (around €3 million per day).
Little is known about the nuts and bolts of the Phoenix bid, but it is clear that it is far removed from the Alchemy bid in the sense that it envisages some degree of further volume car-making activity being retained by Rover. Alchemy’s bid was framed in terms of trying to turn the operation into a much lower volume niche sports car-based operation. Under Alchemy, the Rover brand would go and its volume range would eventually die. Even with help from Lotus (viewed very much as a role model) this looked like a tall order for an organisation lacking real hands-on experience of the auto industry. The widespread job cuts that would be part of the plan also ensured that goodwill for Alchemy from the workforce and UK government has been virtually nil. The flipside of that has been a groundswell of support for Phoenix, even though Phoenix also envisages substantial – but less – employment reduction.
But could there be a place for a revamped Rover operation in an industry increasingly obsessed with scale and suffering from over-capacity? The answer is not the instant ‘no’ that many industry commentators have assumed, but it is obvious that Rover would require a tie-up with another maker in order to develop new models cheaply. Therein lies one of the problems of BMW stewardship and why Rover may have been better off getting closer to its old technology partner, Honda. A major problem with BMW was the lack of any small or medium sized platforms that could be used to develop Rover models cheaply. BMW chose to develop the 75 off a unique front-drive platform. The costs were high, but the opportunity costs especially so: the long overdue 25 and 45 model range (the volume ranges) replacements were put back and eventually tied into a controversial investment plan for Longbridge which was tied to state aid (BMW meanwhile, has retained the R30 development work which could form the basis for a new entry-level front drive BMW).
To be viable in the medium term then, the Phoenix plan will almost certainly require a tie-up with another manufacturer to develop replacements for the 25 and 45 ranges. A generic lower medium platform belonging to a larger maker, such as Volkswagen or GM, could be made available for the task. That was how Rover developed cars with Honda. Of course, there could be practical problems in defining such a relationship (how far does platform extend to engines, transmissions etc?) and technology royalties alone may not be sufficiently attractive to the technology giver. But it would make a lot of sense.
As far as the beleaguered Rover brand itself is concerned, the situation is by no means hopeless. Weak brands can be turned around in time: look at the progress of Skoda under Volkswagen. Buyers need to feel a sense of security that is missing at the moment, but that could come with a significant tie-up to a larger maker. The failed premium marketing strategy employed under BMW looks naïve now, but the subtle use of chrome and appeal to British heritage on the 75 does not look out of place. The car has been well received, but volume targets always looked optimistic. Even with the current difficulties for Rover however, Rover dealers in the UK are reporting brisk business in response to lowered prices and cheap finance. From a marketing perspective, there is certainly a base to work on. Even more importantly, Rover has a substantial distribution network – especially in the UK. That has real value and is something that another maker could potentially be very interested in.
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As far as the Longbridge plant itself is concerned, the problems there are not unique to Rover. The facility itself is certainly dated and in need of major investment. Elsewhere in Europe, there are plenty of examples of old plants being effectively rebuilt to make them more internationally competitive. The investment required would be considerable, but should also be eligible for a significant degree of government assistance.
The conventional wisdom that Rover is too small to compete in an increasingly globalised industry is therefore a little simplistic. A case can be constructed for the smaller maker, but in order to survive, a smaller maker needs help. A larger maker needs to be present providing crucial development assistance. Support from the supplier industry in the region is strong and the infrastructure in the West Midlands region is also positive for car manufacturing. Moreover, comparative studies of labour costs in automotive sectors in countries across Europe indicate that UK labour costs are relatively low. The exchange rate may have played a major part in determining today’s difficulties – not only for Rover, but also for Ford at Dagenham – but the exchange rate will almost certainly move the other way in time.
Cool heads are certainly needed to pick a viable path for Rover, but the situation is not hopeless. If Phoenix has the financial backing it says it has, along with a relationship of some sort with another maker, a viable plan could be in place. Ultimately, the Skoda model may be one that makes sense, with Rover becoming a distinct brand within a broader family group, but retaining its British manufacturing base and brand identity.