[ROVERNET - UK] China's 40% of MG-Rover

Peter Huttemeier peterhut at melbpc.org.au
Fri Sep 10 04:12:29 BST 2004

On Thu, 9 Sep 2004 19:50:28 -0700 (PDT), you wrote:

>--- "sspmilr at netzero.net" <sspmilr at netzero.net> wrote:
>> Hi Roverists:
>> Does anyone know what the Chinese intend doing with
>> their

Here is another report from the Independent newspaper.

MG Rover are not confirming now denying at this stage, but they had
already announced a plan to study a joint venture with SAIC, so it is
a natural progression.


peter H.

True love beckons for wandering Rover
MG Rover has denied reports of a takeover by China's Shanghai
Automotive. But closer co-operation could be good for the British
carmaker, says Sean O'Grady

31 August 2004

After years of searching for a suitable long-term partnership could MG
Rover have found its true love?

Reports in the motor trade press last week suggest that a liaison with
the ambitious Chinese maker Shanghai Automotive may be blossoming.
Sources close to the Chinese concern were reported in Automotive News
Europe as saying a takeover was inevitable. An unnamed MG Rover source
was quoted as confirming the picture, albeit in the long term.

It all caused quite a flurry. The denials that emanated from some
parts of MG Rover were fairly flat, although it was not quite a
unanimous front.

The truth is probably as follows. First, the MG Rover-Shanghai deal
has to clear its way through Chinese government bureaucracy. Despite
the outspoken comments quoted in the trade press, neither side will
want to be fully open about the details of their agreement until it
has all been approved by Chinese ministers, not exactly laissez faire
in their approach to business.

It is a delicate matter and until this process is complete, probably
towards the end of this year, little will be disclosed that can be
relied upon. There is also the problem of MG Rover's negative dowry;
the obligation to repay a £500m soft loan from former owner BMW if MG
Rover is taken over, a poison pill left behind by the German maker in
2000 that complicates things.

Furthermore, MG Rover desperately needs a partner, and has done so for
years. The search began 25 years ago in the days of British Leyland
and has encompassed many suitors: Renault (an early snub); Honda (a
happy marriage); General Motors (a failed arranged marriage by which
the Thatcher government tried to offload British Leyland in 1986);
British Aerospace (a somewhat complacent owner); BMW (a catastrophe
that ended the harmonious Honda relationship and lost the Rover Group
its Mini and Land Rover assets and know-how); FSO of Poland (where the
collapse of Daewoo's enterprise opened the possibility of MG Rover
buying the factory); China Brilliance (cancelled when Brilliance went
bust); Proton (exploratory talks are now officially ended); Tata
(which may be jealous of the latest move and was in any case a little
cool at times) and now, Shanghai.

Whoever MG Rover eventually gets hitched to, some sort of
burden-sharing is essential. The cost of developing a completely new
modern car is about £1bn, way beyond MG Rover's means. As is endlessly
repeated in the motoring press, the basic look of some of the MG Rover
ranges is becoming a little dated, although it has to be said that MG
Rover's band of engineers and stylists have done an extraordinarily
good job of freshening up their products on an extremely limited

The tweaking of the apparently unpromising Rover 25 and 45 into the
sporty MG ZR and ZS ranges has been especially accomplished. Going to
Ford of America to source the Mustang's beefy V8 for new top of the
range versions of the Rover 75 and MG ZT was just the sort of creative
move that has kept the company going against all odds. The MG SV might
prove to be some sort of Porsche-beater, while the steadily updated MG
TF roadster is still competitive.

Approaching the Tata of India to rebadge their Indica as a CityRover
was also a smart move, one that might one day open up another huge
market to MG Rover. Even the universally derided Streetwise, a Rover
25 with Audi Allroad-style plastic cladding, at least shows the
company is aware that it needs to change its "pipe and slippers"

Nonetheless, sales are sagging a bit, not helped by MG Rover directors
giving the impression that they are feathering their own nests. The
TF, Rover 25/MG ZT and 45/ZS ranges date back about a decade and even
the 75/ZT is edging into middle age. The SV sports car and the V8
saloons are essentially nice models that may do much to garnish the
company's image but which yield little extra volume. The CityRover has
had disappointing sales, and in any case creates virtually no jobs at
Longbridge, whatever the long term holds. MG Rover do need a partner
to help them complete the development of their new mid range models,
and Shanghai Automotive may be the answer.

Which brings us to the third point, and the one that confirms why
these two firms could be an excellent match. Shanghai is ambitious and
MG offers the company an excellent entré into the UK and continental
Europe. The Chinese car market may have doubled in size last year, but
it is still small compared to that of the West. China is also much
more volatile. With MG Rover Shanghai can easily access knowledge
about the European industry, the tastes of European, styling,
marketing and engineering expertise at Longbridge, and the MG Rover
dealer network.

In the short run they can take the Rover 75 design to produce a more
up to date and upmarket saloon than the 1980s VW and GM designs
they've been putting together under licence. In the medium term they
can jointly produce a 45 replacement. Shanghai has the financial
resources and, potentially, the volumes and low cost base to make such
a proposition viable. Even the production division between Shanghai
and Birmingham suggests itself. Chinese tastes demand booted saloons;
Europeans prefer hatchbacks.

The real question, however, is how such a move would affect jobs at
Longbridge. Would the inevitable attractions of the low cost Chinese
base drag the balance of power and production eastwards, leaving MG
Rover as little more than the marketing and distribution arm of a
Chinese-run transnational? It is possible to envisage MG Rover selling
small cars made in India, medium cars made in China and larger cars
made in Britain into the European market. That could be a highly
profitable venture; but would such a set up deliver the volumes that
Longbridge needs to make it break even? That means, say, 200,000 cars
per annum or going on for double its present output.

That must be the worry at the back of every MG Rover employee's mind.
And yet the Honda precedent might give them some room for hope. When
that liaison started in the 1980s it was essentially as an assembly
operation for Honda, making "Rondas", and decried as such. On some
models it remained that way, but in others there was much more of a
spirit of joint endeavour and some of the products of the partnership
had a surprisingly high degree of British engineering and styling.

The other way of looking at the Honda-BL years is to ask what would
have happened if MG Rover hadn't had that deal with Honda and had
tried to survive on its own. Honda bought valuable time and expertise
to the company when it was in dire straits. The two firms drew legally
as well as commercially close. Honda took a 20 per cent equity stake
in Austin Rover, as it was, and Austin Rover had a similar ownership
share in Honda's UK manufacturing outfit, a symbolic
cross-shareholding. Something in that spirit is already officially on
the cards for the MG Rover-Shanghai deal, with a joint venture company
that both will be part owners of. That might also neatly sidestep the
BMW loan problem. Legal structures aside, though, if the relationship
with Shanghai goes as well as the Honda one did, then MG Rover and the
folk at Longbridge will once again have confounded their critics. MG
Rover and Shanghai Automotive; For richer for poorer, til death us do

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