MG Rover’s new alliance agreement with the Shanghai Automotive Industry Corporation marks its return to China after a similar venture with China Brilliance fell through in 2002. If approved, this agreement would assist the struggling UK manufacturer in developing much needed new models while keeping costs under control.

The deal, which still needs to be approved by the Chinese authorities, is the loss making UK manufacturer’s latest move in a bid to achieve profitability for the first time since BMW sold the company to the Phoenix Consortium in 2000.

SAIC already has several joint ventures with foreign car manufacturers, among them Volkswagen and GM. A tie-up with SAIC offers MG Rover the necessary capacity and scale to replace its medium sized Rover 45 model with an expanded range, including a potentially lucrative MPV (minivan) offering, for example. An alliance could also enable MG Rover to enter into the highly lucrative supermini segment. Ironically, under the deal that saw Rover sold to Phoenix, BMW retained the rights to produce the massively successful new Mini, a vehicle that MG Rover will be attacking head on if it does launch a supermini.

The prime benefit of joint ventures with western manufacturers for Chinese car firms comes from the supply of proven technology. However this alliance would also be beneficial for SAIC’s expansion plans in the domestic market, as well as strengthening its network abroad for potential export activity.

MG Rover also has an alliance with Malaysian manufacturer Proton and India’s Tata Motors to jointly develop small and medium-sized cars. These would not be affected by the SAIC deal according to MG Rover’s spokeswoman.

If the partnership is approved, it could prove a significant step forward for MG Rover. It has set itself a target of reaching profitability by 2006, and is determined to achieve it by engaging in joint ventures and alliances as a means of growing sales and expanding its vehicle offering. Should it fail to pull off a successful long term link up, MG Rover’s future would again be cast in to doubt. Yet in picking SAIC, with its positive track record in collaboration with other foreign players, MG Rover has chosen wisely and should reap considerable reward from the deal.