The BMC>MG Rover Story : Part Seven – Life under British Aerospace
Life must have seemed very quiet for any Rover manager following the sale of the company to British Aerospace in 1988 – gone were the days of constant media scrutiny, public haranguing and trade apathy. For the first time since 1968, the company could simply get on with its new model programme, and follow it with a sense of direction and purpose.
Much of Rover’s structure had been licked into shape in the post-Edwardes era by Harold Musgrove and Ray Horrocks; Longbridge and Cowley had received extensive refurbishment for Metro and Maestro/Montego production, and this had been added to in anticipation of production of the Honda Ballade and Legend models, under the watchful eye of Honda production managers.
Rover was beginning to turn around and, although the Maestro and Montego had both received a lukewarm reception from the buyers, a continual programme of development had ensured that the cars remained at least competitive in their sectors. The company’s image of unreliability would prove hard to shake off, and certainly the Maestro and Montego had not been helped by early model gremlins – this being exacerbated by the wobbles that the Rover 800 also encountered early on in its life. However, the product was fundamentally good and, thanks to Rover’s own efforts and those of Honda, undoubtedly by the time of the BAe takeover the company’s product and its image were both a million miles from where they had been a mere decade previously.
However, now that the company was turning the corner, what was needed was an investment programme, which would lead to the replacement of the volume models: the Metro, likeable and well-built it may have been, was by 1988 saddled by its four speed gearbox, aged (although still very capable) A-Series engine, and smaller-than-average package. The vitally important Maestro and Montego were also struggling, and this was caused by their reputation of unreliability (unfounded by 1988) and their aged styling.
Where the company was doing well, was in the sectors that they were represented by ‘Rover’ models. The question of replacing the Maestro had been answered by this time: the collaborative Rover R8/Honda HY would prove to be the perfect Maestro replacement, and being designed as a Rover from the outset, meant that it had every chance to continue the success of the then current ‘SD3’ Rover 200.
Future model plans are cut-back in the interests of cost-cutting
The Metro, though, had been subject to much soul searching: the AR6 had been dropped in the lead-up to the sale of the company to BAe because it would have absorbed huge development costs at a time that the Government was trying to keep spending under control. The Montego was still a very capable car, let down by a poor exterior design, and there were two different programmes investigated, in order to produce its replacement.
What Rover needed, therefore, was a large financial commitment from BAe – releasing enough cash to produce an all-new replacement for the Metro and Montego. What they got was something a little less than that. The replacement for AR6 had been devised as a facelifted version of the existing car, which incorporated its K-Series engine and a revised version of the existing car’s Hydragas suspension (this being known as the R6). At the time of the BAe takeover, it would have seemed logical for the company to lobby for a return to a car more advanced than the R6, but because BAe wished to keep investment under control, any plan for an advanced 1990s supermini was quashed in favour of the budgetary R6.
The same would be the case for the utterly important Montego replacement: AR9 was conceived as a rebodied and ‘Roverised’ Montego, and would have played on that car’s strengths – that plan was dropped. The same was the case for the AR16 and AR17, which were based on a shortened version of the Rover 800 platform.
The R9 project also had legs: this was based on the R8, but shared only its front door skins – importantly, it was somewhat larger than the car it was based upon, being aimed directly at the heart of the Sierra/Cavalier class – where the lion’s share of company cars sales took place. In the end, budgetary constraints placed by BAe ensured that the Montego was never truly replaced: the R8 spawned a saloon (which was based entirely on the Honda Concerto saloon), which would eventually appear as the Rover 400 – and this car was somewhat smaller than the class centre of gravity, even if it was an impressive car.
What was clear by this time was that where a cost saving could be effected by relying on Honda, BAe would ensure that it happened. This was not an entirely bad thing given the strength of Honda’s design and the quality of its production but, at the same time, it would lead to an unhealthy reliance on the Japanese company.
Honda model plans are extended
In June 1989, this situation was exemplified by the signing of the agreement that would lead to the production of the Rover 600. The car would be based upon the upcoming 1992 Honda Accord and, because the Japanese company were designing the car for themselves, there were some very strict design stipulations (laid out in more detail in a later chapter). Essentially these compromises meant that Rover would have to adopt Honda’s engines, suspension, and interior with no technical input. It was a matter of good fortune that Rover was given enough leeway on the exterior for Richard Woolley to produce the good-looking car that he did.
By 1989, Graham Day had devolved most of his Rover duties to George Simpson. The ex-Land Rover manager was given the task of continuing the task of continuing Rover’s march upmarket – and, as a result, continued the Graham Day-inspired policy of attaching little significance to the company’s falling UK market share. As long as the profits on the cars they did sell in the UK were healthy, then Rover were a success. Certainly, at the time of the introduction of the R8 in October 1989, much play was made of the quality of the product and the fact that they were priced to reflect this quality.
The plan, therefore, was for Rover not to go head to head with the volume producers such as Ford and GM, but to produce technically more advanced cars that would occupy the top price point of each market sector they occupied. In 1989, this policy had yet to bear fruit, but the seeds were sown when the Rover 200 was launched with a hefty price premium over Ford and Vauxhall.
However, at this time, Rover kept the Maestro in production (in order to keep Cowley in action and to appeal to the cheaper end of its sector) even though it was, by then, a spent force on the market, and it sat rather uncomfortably in the Rover range, isolated as it was. When the booted R8 appeared in April 1990, the same decision was made to keep the Montego in production – the matter of its replacement was not really to produce a replacement at all, but cover the market with two cars: the 400 at the bottom and the 600 at the top. It was not always to be the case, as the existence of the AR9, AR15/16 and R9 proposals would prove – given a freer hand, Rover would have liked to produce a direct replacement for the Montego, aimed at the heart of the Sierra/Cavalier market, but instead were led down the ‘premium’ route thanks to BAe and Honda.
Rover sale to BAe under investigation
In the summer of 1990, the EU launched an enquiry into the terms of the Rover sale to BAe – the EU Commission was less than happy at the £150m purchase price, which they considered was far less than the company’s true worth. The EU Commission also raised concerns about the fact that other prospective purchasers were ruled out of the bidding process, as this constituted unfair competition.
Ford was called in to produce what was considered a true market value for Rover at the time – and they came up with a figure of £800m. This was somewhat adrift of the £150m that BAe paid, which was bad enough by itself, but tied in with the £800m injection of working capital that the Government placed on the table, and the £2.6bn debt write-off for the previous 13 years under public ownership, it looked as though the Government had seriously undervalued the company.
In fact, this merely backed-up what Parliament’s own financial watchdog, the National Audit Office (NAO) had concluded back in December 1989. Their findings on the sell-off of Rover to BAe had been even more damning: according to the NAO, the actual amount of taxpayers’ money swallowed up by BL during their period of public ownership was £3.457bn, as opposed to the £2.6billion previously published.
The fact that all of Rover’s debts had been written off by the Government meant that Rover’s true worth was indeed much greater than £150m – the NAO even claimed that Rover possessed something in the order of £250m of surplus assets (unsold cars, etc.) at the time it was sold to BAe.
During the sell-off negotiations in 1988, Barings Asset Management advised the Department of Trade and Industry that Rover, shorn of all debts would be worth £950m, a similar figure that reached by the EU Commission. The NAO report also noted that by the end of 1989, BAe had already recovered £126m of the original purchase price by selling off company subsidiaries:
- 40 per cent of the DAF truck company, which was worth somewhere between £40 and £50m. When DAF was floated, Rover’s stake raised £87m for BAe.
- Rover sold its holding of their computer services company, Istel, for £39.1m
The NAO concluded that the most conservative estimate of Rover’s worth should have been £206.5m: ‘The sale price of £150m fell significantly short of the real value of the company.’
However, thanks to a general upturn in the world’s car markets and an improving product line, Rover began to make modest profits during its time under the control of BAe and that was the time when BAe could have taken the opportunity to invest serious sums of money in their car company. Instead, the company continued along the path of relying on Honda for the major technical input on future models.
The replacement for the R8 Rover 200/400 came up for discussion in 1991 and, right from the beginning, it was clear that BAe would not allow Rover enough money to build their own car, and capitalise on the position of strength that the R8 had been establishing for itself and the company on the marketplace.
Basically management issued an ultimatum that the new car would be heavily based on a Honda model – as the Rover 600 had been – and, if that could not be made to work, management threatened, the company would be closed! So under these conditions, the Rover design team set about working on a replacement for the R8. As detailed in the next chapter, Honda also ensured that the new Rover (codenamed HHR) would be so heavily based on the Honda version of the car (HHH) that there would be little room to make the cars stand apart from each other.
The belief within Rover was that Rover had made a success of differentiating their 600 model from the upcoming Honda Accord, and the same process should work for the smaller car. It soon became apparent that Honda would not allow Rover any real leeway in which to modify the car, and, as a result, the 600-formula of intelligent redesigning of certain body panels to achieve a different look was just not going to work again.
This apparent crushing of their design independence and the growing dominance of Honda increasingly disillusioned many elements within the design team. If that was to imply that the general working relationship between Rover and Honda was poor, that was certainly not the case, but the design departments of both companies, constrained as they were by management, definitely enjoyed a less congenial relationship as time passed.
Be that as it may, work with Honda continued into the early 1990s, but Rover themselves also did work on some of their own projects listed below:
- R17/R18 (launched 1991): This was the replacement for the 1986 Rover 800 but, instead of being the new car that the company needed, cost constraints meant that it would end up being a fairly comprehensive facelift of the original car. This proved to be a short-sighted policy, given the way it was outclassed towards the end of its life in 1998.
- R3 (launched 1995): The small car that was intended to replace the Metro/100 but was taken upmarket in search of higher profit margins. A low cost project based on R8 underpinnings that resulted in a very good small car.
- Pathfinder: An innovative car that was conceived to bridge the gap between the Rover range of passenger cars and the Land Rover models. Initially conceived as a two wheel drive Sport Utility Vehicle, rugged in looks and commodious, but was canned on cost grounds by BAe management. The bones of this project are alleged to have formed a basis for the later Freelander.
- MGF (launched 1995): Designed by Rover Special Products and only given the go ahead when project supporters lobbied management, citing the fact that they could develop it on a shoestring budget. This they did, by enlisting outside suppliers to perform much of the initial design/development work. A clever collaborative deal with Mayflower also ensured that the start-up production costs would be cut in return for a share of the profits on each car.
As can be seen, all of these projects were dictated by cost – and, although thanks to the ingenuity of Rover’s Designers and Engineers, they turned out to be very capable cars, the truth is that they were always going to have a limited lifespan compared to more thoroughly developed cars.
BAe also made a considerable amount of money by closing two-thirds of the Cowley factory (all Rovers built at the site now were actually products of the old Pressed Steel Fisher site) and selling it to land developers, whilst also doing the same at Canley. This policy also flew in the face of Professor Sir Roland Smith’s proclamation back in 1988 that Rover was safe in the company’s hands. It had, of course, become perfectly clear by this time that BAe was merely acting as a steward for Rover – and any long term ambitions of ownership had been washed away when Professor Smith had been replaced at the top of BAe and the company ceased making the large profits they had enjoyed during the 1980s.
By 1993, and with the ‘Portfolio’ range of models nearing production, BAe started looking for an exit route from Rover. Little was in place for beyond the 1995 influx of models, but at that moment in time, a snapshot in history, the sale of Rover looked very tempting for BAe. Arguably for the first time in the company’s history, Rover actually consisted of a logical and progressive model range: Metro, 200, 400, 600 and 800 at the top (Maestro and Montego were by then low-volume specialist cars and right on the fringe of the range). The timing of their sale was perfect, and even though a cynic would say that BAe were selling exactly five years after they got hold of Rover, they were merely looking after the interests of their shareholders.
The BAe years were quiet ones at Rover: summed up as years of under-investment, closures and a gradual move further up the price scales for their car ranges. British Aerospace did not do nearly enough for Rover, but the consequences of this would not be felt by them (who reaped serious financial rewards, come sale time), but by the company they sold Rover to in 1994: BMW.