THE BITTER END OF A LONG AND DISASTROUS ROAD?
OR, MAYBE A NEW BEGINNING?

TOWERS AND Co. - HEROES OR VILLIANS, OR MAYBE JUST OPPORTUNISTS?

The Rover story.

The Rover car company has had a long (since 1904) and for most of it, honourable, history as the maker of high quality, innovative cars for the professional middle classes.

As most readers will know, its recent history has been much less illustrious.

A quick and dirty recent history goes as follows;

• Rover assimilated into British Leyland, which ruined the company through a lack of investment and execrable quality. Reputation slumped, despite the quality of design.
• Rover cars was purchased by British Aerospace in the late 1980's, because there was 'synergy' between making aeroplanes and cars. Synergy turned out to be conspicuously absent (as is almost always the case). It is more likely that the BAe board were simply stir crazy about acquisitions at the time.
• BAe/Rover formed an alliance with Honda cars. This showed some promise, as it gave Rover access to some of the best engine technology in the world. Could just possibly have signalled the re-birth of Rover.
• BAe 'Do a British', run out of patience and bottle and sell Rover to BMW for £800 million. Honda distraught at the betrayal - that will teach them to have anything to do with a large company quoted in London!!
• BMW reported as 'horrified' at the mess they discover inside Rover. Mess includes clapped out plant and many arcane practises, leading to low quality and productivity. Rover dubbed 'The English Patient' by BMW insiders. Nevertheless, they strive bravely to bring Rover up to scratch, investing £'s hundreds of millions to bring plant up to the latter half of the 20^th century.
• They also invest in new model development, leading to a new range of Rover cars and to the New Mini. The 'old' Mini had been a huge success, developed in the 1960's. As all too usual with British companies, management sat on their arses and simply milked the Mini for nearly 40 years, until it reached a geriatric end. BMW recognise huge potential in Mini concept and brand, and design a brilliant successor, which is manufactured in Britain.
• BMW also struggle with Land Rover, which had the same range of clapped out facilities, bad practises and famously low quality and productivity.
• Eventually the German 'Kings of the Road' recognise that they have made several disastrous mistakes -amongst which are underestimating what it takes to revive a badly managed, clapped out British manufacturer - and create a new range of cars that were distinct from BMW and could compete in world markets. This all too much, so having made a very expensive and distracting attempt to succeed, they decide to quit. Despite receiving huge odium in UK, BMW really did try and put a lot of investment into Rover to levels no UK investor would countenance. So, BMW withdraw with some honour, having decided to 'sell' Rover for £10, together with its new plant, plus about £1billion worth of cash, cars and land.
• But the German invaders did not leave quite empty-handed - they kept the New Mini brand and took with them many valuable insights into 4+4 technology from Land Rover.
• New Mini now a brilliant success worldwide and BMW range of 4+4 vehicles doing rather well.
• BMW re-focus on their core business of making superbly designed high quality cars and go from strength to strength.
• Meanwhile, great shambles about what to do with Rover - City venture outfit Alchemy make offer for MG brand with stated intent of making niche products. Result would be many redundancies.
• Government steps in, and scrambles a deal with the Phoenix consortium, led by John Towers and colleagues, who vow to bring a new, shiny Rover Group from the ashes, at little cost (£10) to themselves.
• Towers and Co. feted as heroes. For short while, Towers features in ads, advising the marketing dept. to save money on ads, so that it could be spent in improving the models. (We will shortly see what he may have been saving it for.)
• Rover is now a small mass market manufacturer with an ageing product range, apart from the new, BMW-inspired Rover 75, which does well.
• Rover stumbles along for several years, doing cosmetic facelifts to an ageing product range. This sustains the company for a while, but does not bring it to profitability. By comparison with competitors, Rover's investment in development is pathetic. The estimate for 2003 was £14.7 million spent on R&D which was by far the lowest of any volume car manufacturer. So it can be surmised that Rover wasn't investing for an independent future.
• Along the way, Mr Towers and his colleagues have sold most of the land that they inherited; made Phoenix, the holding company, a separate entity from the loss-making car manufacturer, hived off the car financing business and sold the parts business. Many voice suspicions that there is not a little gain in all of this for those who lead Phoenix.
• Rover scramble around the world looking for a partner to bail them out of penury and low volumes (This time, it won't be Honda!).
• They fail several times, and eventually strike a deal with a Chinese outfit, Shanghai Cars.

What about the Workers?

Image by David Simonds, courtesy of The Guardian, November 15, 2004

An angry spat has recently broken out between MG Rover and Jim O'Donnell of BMW, who describes MG Rover directors' compensation and pension fund payments 'disgusting' at a time that losses mount and the main employees' pension scheme is estimated to have an under-funding of over £60 million.

The reported amounts that directors have salted away for life after Rover vary somewhat - the 'Guardian reports that 'There was a £3.58 million payment to a trust fund (for director's pensions), down from £12.95 million the previous year. The highest paid director received £1.55 million in pay and benefits.

John Towers defends the trust fund for directors pensions, estimated to be worth more than £16 million, claiming that, "It will provide us with a pension of £80, 000 to £85,000 per year, when typical senior car executive pensions are around £150,000". He is right, £85,000 is not a lot for directors of large companies - but most have to work quite a long time for their £150,000+. £16 million should fund at least 10 pensions of £85,000, so his quoted sum will depend on how many members there are of the executive fund. There should also be some interest in other assets, perks and emoluments that the directors of Phoenix might have salted away in their time with the company.

Pity about the bulk of the employees, whose pension fund is in serious deficit. But in this regard, the Phoenix directors are no different to their colleagues in FTSE 100 companies, most of whom have not joined the ranks of the disadvantaged when it comes to the closure of final salary pension funds.

The New Deal.

Now all hangs on the deal with Shanghai Automotive.
The Sunday papers on November 21, 2004, report the following:
- Shanghai will invest about £1.4 billion into MG Rover, and the intention is to develop 4 new models in the UK, to be manufactured at Longbridge and in China.
- The vehicle for this investment is a joint venture which will, amongst other things, own the intellectual capital of Rover, which, with the brands and access to the European markets, is probably the focus of the Chinese interest.
Shanghai automotive will own 70% of the joint venture, which in effect means control of the technology and know-how of Rover.

If things work out well, it should safeguard Longbridge assembly jobs for a time, which is good news.

However, all that we can really assume at this time is that the 'Phoenix Four', namely Mr Towers and his colleagues, are unlikely to suffer as a result. Jonathan Glancey in the Guardian of November 9^th, 2004, mourns the death of British innovation and engineering excellence, to be, "Ousted in favour of an unalloyed pension fund culture every bit as desirable and inspiring as a Rover 25".
Even more alarmingly, yet again it is likely that the locus of ownership of UK intellectual capital will move progressively offshore, in this case to China.

Other European car makers are unlikely to be pleased by the deal, as it is the equivalent of a Trojan Horse, letting the Chinese into the European market.
What votes for Mr Towers and his colleagues? Are they great heroes, conniving villains, master strategists or simply the usual rather greedy opportunists?

Rover, the Chinese Trojan Horse?