8th April 2005 09:01
I have just been interviewed on BBC radio (World Service) about the MG Rover situation. I was asked several questions – one about whether the British government had done all it could (basically, yes), what will SAIC do now (it may just wait for MGR to formally go into receivership and then cherry pick the assets it always wanted, Rover debt worries over) and another about the MG brand (yep, someone out there may well see a future for Longbridge as a niche sports car producer based around the MG brand, Alchemy style).
But it is a sad and slightly shambolic end with the government and Rover management at odds this morning over the precise status of the company. There are even, astonishingly, some reports from China that the deal talks are still not dead (I find that very hard to believe). You have to feel for the people who work at Rover amid all the confusion. Are the receivers/administrators in yet? Strictly speaking no, but it is obviously a matter of time now – hours probably, and I would say receivership (closure and assets sell-off) is more likely in the end than going into administration (with business still running as bits and pieces are possibly sold off and restructuring takes place with a view to the core business carrying on long-term).
Auditors PwC are today inside Rover’s plant at Longbridge evaluating this administration or receivership question. Administration would mean carrying on producing cars at a loss, worsening the financial position – and keeping production lines going would be a major challenge anyway, perhaps impossible now, even if customers can be found (and credibility in the marketplace has crashed, so Rovers will need big discounts to shift). Hard to see where a ‘going concern’ buyer would come from. With the SAIC deal dead, suppliers no longer supplying or, if they are, demanding payment on delivery, the game is basically up.
We may see the company going into administration initially – but with little prospect of production lines starting up – followed by formal receivership soon. Either way, control of the company passes to auditors who are looking to compensate out-of-pocket creditors.
It certainly looked like a curious Catch 22 this week, with SAIC saying it needed the British government’s proposed Rover bridging loan of £100 million (intended to keep cash-strapped Rover in business in the short-term) in place and guarantees on Rover solvency for the next two years in order to be able to sign the deal, the government saying that the loan was contingent on a deal being done – ‘a bridge to somewhere’. The deal looked very shakey this week but let’s not forget that Rover has been negotiating with SAIC for months now. The difference this week was that Rover has finally run out of cash. But there was always the feeling that this was not a deal with a big head of steam behind it on the Chinese side.
Some bottom line facts: Rover production has steadily declined towards 100,000 units a year from 200,000 since 2000. It loses money, something which was masked by BMW’s dowry. Its volume competitors in Europe are doing 1m-2m volume production each, just in western Europe – and they have global platforms, production elsewhere in the world, to further reduce unit costs, amortize the heavy investment that new models and manufacturing capacity demand. Rover simply cannot fund new models on its own. The Rover business model, as is, does not add up. The long search for a partner to create a viable business has ultimately been unsuccessful (I still say Tata could have been handled better and might have been a better bet for ‘all eggs in the basket last ditch’ than SAIC). That is not so surprising in an industry that is characterised, globally, by low profitability, market overcrowding and excess production capacity. There was never exactly going to be a fight to be Rover’s suitor.
I cannot see anyone coming in at this point to buy the lot and keep Longbridge going in its present form. The company is facing break-up now (it gives me no pleasure to write those words). Sad end and it is hard to get beyond a state of mourning almost today. Sympathies are with all the Rover people and indeed its suppliers. But next week the business of looking forward begins in earnest, reality checks taken.
– David Leggett
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