A deal leaving Shanghai Auto Industry Corporation with a 70% stake in MG Rover seems imminent.
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Speculation is rife that the proposed joint venture between Shanghai Auto Industry Corporation (SAIC) and embattled British car maker MG Rover – that would leave SAIC with a 70% share – will be announced this week. The deal would mean a vital £1 billion investment for Rover, but whispers that SAIC is unhappy at the cost of the project mean that a happy ending is not yet assured.
Not all parties are happy with the proposed deal. Chinese officials are said to be concerned that the proposed price is too high for a company, which after all only holds a 3% share of its home market. There are also concerns over Rover’s relatively weak research and development, a problem that SAIC is ill-equipped to tackle. SAIC also has its hands full with running Ssangyong Auto, a South Korean car producer that it acquired last year.
Nonetheless, it is hoped that these concerns will be smoothed out if Gordon Brown, the UK chancellor, meets executives at SAIC to discuss the possible joint venture with MG Rover on his current tour of China. Given that 6,000 jobs are at risk at the Rover factory in Birmingham, UK, and with an election looming, the chancellor must be fully aware of the political importance of the planned joint venture.
It is likely that a deal would prove beneficial for both companies. It would certainly go some way to providing SAIC with both a brand and a product range that can make a significant impact in markets distant from its native China. The agreement would also provide MG Rover with much needed cash injection, enabling it to replace old models, thereby improving its brand image and customer appeal.
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By GlobalDataOther Chinese and Asian car manufacturers, which currently lack a network and brand image to target the European market, will be looking at the Rover/SAIC deal with great interest, and if successful it could herald other similar alliances between Asian and European companies.
However, the delays in concluding the venture do not augur well – it was originally set to be launched early in 2005. Rover must be hoping for a quick resolution – rumors of SAIC’s apparent concerns about the cost will do nothing to bolster the already pessimistic outlook at the UK’s last remaining domestically-owned mass auto manufacturer.
SOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.
