News : August 2004
27 August 2004
Now that development of the RD/X60 is back on track (see story below), it is up to MG Rover to get the car into production as quickly as possible. After all, sales of the 45 do not appear to have improved since the launch of the facelifted model, and following some harsh press criticism of it (mainly concerning its age, not its ability), its shelf-life should really be counted in terms of months, rather than years.
Given that MG Rover has almost no internal Research and Development facilities at Longbridge, it comes as no surprise that the company is reliant on outside contractors to undertake much of its engineering development. The company has been there before, employing Prodrive to assist the Rover 75/RWD conversion and TWR for much of the engineering work on the RD/X60.
Now, this is where things get interesting. Following the SAIC tie-up (which, although not yet rubber-stamped by the Chinese, should be finalised within a matter of weeks), MG Rover now appear to have a budget. However, it still lacks facilities. And although it maintains that it can develop the car in-house, there is no doubt that external contractors are the way forward, if only to get the car out for its scheduled launch at next year’s Frankfurt motorshow.
The only question that remains is: which outside contractor would be able to assist MG Rover?
Following a sighting of former TWR managing director Tom Walkinshaw at Longbridge yesterday in deep discussions with MG Rover executives, it would appear that there is now proof that the company is arranging outside assistance.
Not only that, but an anonymous source confirmed that one of the topics of conversation was Pininfarina.
As an example of the close-knit nature of the motor industry, Pininfarina now owns Matra – a company that has been linked with MG Rover in the past. Intriguingly, Pininfarina is set to announce (as one of its projects) at the Paris Motor Show, Project Double-Face. According to the company’s website, “the Double-Face project, which Pininfarina has been working on jointly with Matra Automobile Engineering, started from a hypothesis: the possibility of developing two cars for a multi-brand manufacturer, one in sheet metal, and the other in composite material, as distant as possible in stylistic terms, but with common technical features so as to reduce the impact of tooling costs on niche volumes.”
Pininfarina’s Project Double-Face, due to debut at this year’s Paris Motor Show.
As MG Rover is a multi-brand manufacturer, working at niche volumes, is it possible that Project Double-face could be a preview of the production methods employed on RD/X60? Don’t bet against it…
Tough times ahead..?
25 August 2004
AUTOCAR magazine speaks of the two body styles: a five-door hatchback and four-door saloon (there could well be a third, see below – Ed). This has changed slightly from the plans which were said to have been drawn up by the company in the event of not finding a partner – where a Euro-friendly five-door option would be the only choice. Now that China are close to being on board, the demand for a saloon has become stronger because the Chinese buyers love a three-box.
Update 26-08-04: According to a reliable source within the components industry, the RD/X60 is back up and running again. The hatchback and saloon versions are coming, and “are pretty close”, to AUTOCAR’s renderings, but more interestingly, MGR is working on a new coupe (X120), “probably some sort of later day MGB”.
As well as this, he noted that MGR is a well liked customer in the business, because it always pays in advance… which it has done in this case.
Currently, the Chinese car market lags behind the UK in terms of volume, but industry analysts forecast that it should grow by a factor of ten within the next fifteen years, making it potentially the biggest car market in the world. And as the best-selling car in China in 2003 was the (1991-1997) VW Golf-based Jetta model (called the Vento in Europe), SAIC are pushing for an effective saloon model to be formulated.
|MGR is working on a new coupe (X120), “probably
some sort of later day MGB”
SAIC are an ambitious car company, and it seems that it is not happy to remain China’s largest car manufacturer, as its stated ambition is to become the sixth biggest car company in the world within fifteen years. One commentator noted, though: “Everyone now seems to have picked up on the SAIC announcement plans to become one of the world’s top six automotive makers by 2020. But nobody has said that the deal with MGR is still subject to approval by the Chinese authorities…..”
Despite this, the spiders’ web-like network of alliances could well work in MG Rover’s favour. The Deal to purchase the ex-Daewoo/FSO factory in Poland, which everyone was beginning to assume was off, could well be back on. According to the Financial Times, “Following the fiasco of the last round of negotiations in March, when the British decided to choose China for their next investment project, there is a chance that they might return to the negotiating table. This time, however, they could be backed by China’s Shanghai Automotiv (SA) and Ukraine’s ZAZ. According to unofficial information, talks could resume next month. It is rumoured that Rover may provide modern technology, while ZAZ, which already closely co-operates with FSO, badly needs capital. The role of the Chinese partner is still unknown. Parkiet clams that so far, only a few other companies have expressed an interest in taking over the FSO, including Japan’s Daihatsu and Austria’s Magna Steyer. However, the government remains reluctant to reveal the names of the firms negotiating a possible deal.”
So with the RD/X60’s future looking a little more secure than it has of late, this leaves the Proton alliance. According to AUTOCAR magazine, “Proton will start selling its new Gen-2 five-door hatchback in the UK this winter – but the Malaysian company last week shut the door on a future deal with Rover, saying it has ended all negotiations. A brief statement said that any collaboration, which could have spawned a Roverised Gen-2 to replace the 25, was ‘not viable’ and had ended. The news leaves Rover’s new-car strategy with another problem.” That problem being finding a replacement for the 25/ZR and 45/ZS…
And because of this especially, MGR are by no means out of the woods yet. Falling sales in the UK have hurt the company, and a competitive car market means that there is little likelihood of things improving just yet. With a static bank balance, the company shows no signs of going under just yet, but falling sales mean that there could well be job losses to accompany a cut in production volumes. The company is has already involved itself in one round of redundancies (see News, July), and intends to fight against anyone fighting further redundancies using the BMW-era “Jobs for life” clause… Sad as it is to report, there may well be further redundancies.
RD/X60 is still scheduled for a reveal towards the end of 2005, with an onsale date of early 2006. Gen.2 could conceivably be introduced shortly after this, but this means that MGR need to continue fighting with the current range… More publicity and advertising seem to be the only way forward if the 25 and 45 ranges are not going to slip into obscurity and off the remaining potential buyers’ shopping lists.
Despite what this picture implies, buyers are not exactly queuing up for the CityRover
MGR in discussions to give the CityRover a more attractive price tag.
19 August 2004
FOLLOWING disappointing sales during the first half of 2004, it appears that MGR are now holding talks with partner TATA regarding the prospect of cutting the CityRover’s list price. The TATA arrangement called for 100,000 CityRovers to be sold over a five-year period, and yet during the first six months of 2004 only 4,606 found homes.
MG Rover has found that trading conditions in the budget car market have been tough, and the arrival of the much-lauded Fiat Panda has not helped the tidily-styled car’s cause one bit. Widespread press criticism of its interior build quality and paucity of standard equipment has also hindered the car’s prospects, and as a result, there is the good possibility that CityRover will receive an upgraded interior towards the end of the year (as reported in these pages in June).
MGR’s discussions with TATA are said to have concentrated on price reductions, as the current car is simply out of its depth at current levels. Already, pre-registered cars have started to appear at car supermarkets for £4,999 and this would indicate that the market may already be dictating the car’s natural price level. One anonymous source told austin-rover.co.uk that the initial Indica studies proposed a price level of around £5,000. And given the Indica/CityRover’s essential strengths, it would have waltzed out of the showrooms in its thousands at this kind of price.
Conclusions to be drawn from the affair are simple: let the market decide what a car is worth, and if it offers an average product, the Rover brand no longer carries enough kudos to command a premium. One suspects that these are hard-learned lessons, and that the company won’t make the same mistake again.
MG Rover’s Shanghai concession.
Michael Wynn-Williams on the deal that will make MG Rover…
21 August 2004
MG Rover has at last secured the toe-hold in the rapidly expanding Chinese market that was the long-promised panacea for all its ills. Thanks to the new alliance with Shanghai Automotive, or SAIC, MG Rover’s big moment has finally arrived. Yet with the major global automakers falling over each other to get into this market the British company’s deal has been overlooked by the world’s headlines. Even at home the British media, weary of another hopelessly over-optimistic Rover tale, have chosen to largely ignore the breakthrough. In doing this they are missing out on a new development in the saga of foreign industry leaders carving up the Chinese market as part of their global strategy. The Chinese have a plan to hold these giants in check and this could open the door to MG Rover.
This is a market that deals in superlatives. With a population of 1.2 billion, yet a car ownership rate of only 5 or 6 per 1,000 people, this is the largest unexploited market in the world. VW made their entry in 1985 with the Santana, based on the original Passat and the first foreign car to be made in China. For the next ten years it owned the market, facing only lacklustre competition from locally assembled Peugeots and Citroens. Despite being joined by the latest version of the Passat the Santana still sells well in rural areas. On the back of this success VW now produces 11 models in China including the best selling Audi A6. With sales last year of 600,000 and rising fast the company now sells more in China than in Germany. According to investment bank Goldman Sachs, China could be contributing up to 80% of group profits.
With VW showing the way the competition have overcome their previous sense of caution. GM landed in 1999 on a greenfield site in Shanghai but has been spending prodigiously to catch up with VW ever since. With $2 billion already spent GM plans another $3 billion during the next three years to lift production to 1.3 million a year.
GM Chairman and CEO Rick Wagoner told a news conference last month: “we wouldn’t mind being number one,” but added, “the primary goal is growing ourselves.”
A month later he cannot have minded too much when it was announced that GM had outsold VW this June for the first time ever.
Up against these giants of the industry MG Rover always looked something of an irrelevance. A deal with Brilliance China showed early hope and then collapsed in a farce of dodgy deals with the maverick Brilliance chairman, Yang Rong. The final insult was administered by MG Rover’s arch nemesis, BMW, who swept in and made a deal with the Chinese company to produce 3 and 5 Series at a new factory in Shenyang.
Yet the Byzantine structure of the Chinese industry appears designed to hold down these large foreign manufacturers, while at the same time giving a new opportunity to smaller manufacturers like MG Rover. BMW may be ahead for now but in a recent interview the chief executive of the joint venture, Heinz Juergen Preissler, admitted, “we are limited to a capacity of 30,000.” Current output is actually half this, though the new plan is to climb to 50,000 in 2006. Compare this with Audi who hope to shift 75,000 this year alone and are hardly likely to rest there.
BMW must be rueing the day they signed up with a company that comprises a sprawling empire of disconnected interests. Shares in Brilliance were sharply down this month when the government threatened to shut down a related investment firm, though no one is quite sure whether this belongs to the company or a former chairman. The news came on top of a 30% drop in production in May for Brilliance China group, which includes another venture making minibuses as well as a Mitsubishi based indigenous car. Indeed, production of BMWs lies a distant third behind these two, forcing the Germans to play the role of junior partners in a venture that is beginning to misfire. BMW can cope with success, but they have a poor record with losers.
GM and VW are not having it all their own way either. Their big profits are derived from discovering a new market for cars they have designed and sold elsewhere. They would prefer to own and control the entire production process in China but regulations forced them to find local partners. Worse, companies find that they have to find a clutch of different partners if they are to introduce multiple models. By an extraordinary quirk of fate, these two dominant foreign competitors in China share a common partner in SAIC, the prospective partner of our own MG Rover. SAIC is China’s largest car assembler, hosting a combined production level of over 625,000 for its two partners. This has helped the Chinese build expertise in production methods and local component supply, but what they lack is a model design of their own. GM are investing in design facilities to adapt their world car models to the region but would hardly be interested in helping SAIC develop its own cars.
This is the gap where MG Rover can slip in. They are already planning to sell a perfectly creditable 3,000 Rover 75s there next year, built in Longbridge and loaded with extras so returning excellent profitability. According to a company spokesman, the Chinese love the British charm of the 75 in a country that is unaware of Rover’s gloomy history. This shows that there is no impediment to selling Rovers in China. In a joint venture SAIC will be looking for something more than quaint charm, but they will not be disappointed. MG Rover, despite their diminutive size, are quite capable of designing world class products. In fact, they are probably the last independent low volume producer of mass market cars in the world today.
The first task will be to finish off the new medium size car. MG Rover claim that most of the engineering is complete on the new hatchback but in the Chinese market 90% of the cars are saloons, so undoubtedly the alliance with SAIC will breath life into the saloon version. There is also talk of doing an MPV for them, another development that MG Rover could not hope to fund on its own. A future plan is to jointly develop the replacement for the Rover 25. Whereas Honda and GM have found that transfers of technical knowledge can lead to unscrupulous copying of their vehicles this is not a concern for MG Rover. They have everything to gain from selling their expertise while they can rely on SAIC to police the technology in their own interests. Notwithstanding the relative success of the 75 over there, this is a market that MG Rover could not have entered on a large scale by themselves so any that SAIC produce are a net gain for both partners and no threat to Rover sales.
For foreign entrants this is still a very dangerous market. Sales figures vary wildly month by month depending on whether consumer credit limits are being loosened or tightened. The rush to invest has resulted in overcapacity, forcing price reductions on the producers and a lowering of their profits. Neither is this the low-cost production base that people imagine, in fact total production costs are said by some analysts to be up to 30% higher than the rest of the world. The supply industry is also poorly developed and yet the national auto policy is demanding a minimum 80% local content after 3 years. No problem to MG Rover, of course, but it denies the global players from utilising slack capacity elsewhere.
The Chinese government are not much help, dragging its feet over implementing the WTO agreements on lowering its trade barriers and openly promoting an indigenous industry. The big western firms are addicted to scale economies and can only ratchet up their investments or face losing future market share, a share they need in order to cover the investments they have already made. Renault boasts of a massive initial investment to manufacture the new Logan as part of a global push towards a four million car production target, but they can only achieve this if the Chinese investment comes right. The starkest warning comes from ELM International, advising incomers to be aware of the ultimate risk: “someday China may decide to eliminate foreign ownership of its auto and auto parts industry”.
Fortunately MG Rover will be sheltered from these travails by SAIC, both because the British company has not made the high risk investments and because the products will be seen as indigenous and so escape punitive pro-China policies. This also liberates MG Rover to form other partnerships elsewhere, safe in the knowledge that their own small global presence means that they will not meet themselves coming the other way. What we see in the UK is our fallen champion holding out its begging bowl for industry scraps, but the ambitious new indigenous industries see something different. What they see is their only chance to find a world class partner that has negligible global presence.
In an industry polarised between the extremes of mega-volume and micro-volume MG Rover is the only independent organisation producing modern, mass market ready cars on a relatively small scale. This makes them highly attractive to emerging companies that lack the technology but want to retain their independence. Longbridge is currently being besieged by calls from potential suitors but the SAIC deal could represent a new business model for the industry. Even John Towers admits that a deal in China is the crucial option for the company. Only China has the production capacity and the market potential while almost completely lacking design capability. To avoid the risk of being swamped by a foreign partner there is only one place for the Chinese to go: MG Rover.
www.sniffpetrol.com, The world’s best satirical website pulled off a major coup for itself, when it issued a challenge to Peter Stevens: shave off your ‘tache and we’ll donate to charity. Well, Stevens did the deed, and showed himself to be a thoroughly nice chap. Richard Porter, the voice behind SniffPetrol commented, “now for Bangle’s beard.”
RD/X60 pictures supplied by AUTOCAR Editor, Rob Aherne.
Thanks also to anonymous and Michael Wynn-Williams…