News : March 2005

MG Sold to China

By Hilton Holloway, Autocar magazine, March 22

THE MG marque has been unexpectedly sold off as part of MG Rover’s joint-venture deal with Chinese car maker SAIC, Autocar can reveal in an exclusive report published today. The long-anticipated deal between the two companies had originally revolved around the Rover brand, outright purchase of the K-series engine family and Rover 25 and rights to produce the 75.

But Autocar has learnt that the MG brand has now been thrown into the deal. This means that a board dominated by SAIC will control the future of the famous marque. MG now accounts for a substantial chunk of MGR’s total sales in Europe, making it crucial to the survival of the European sales network.

More seriously, an agreement to build the vital new medium car at Longbridge is still not sealed. But SAIC is said to be very keen that the new Longbridge operation will be solidly profitable.

Well-placed insiders told Autocar that Phoenix Venture Holdings – the company that controls MGR – is being propped up by cash injections from SAIC as the core car-making business struggles to survive on a day-to-day basis. At the end of last year SAIC paid over around £65m for the ownership of the K-series engine and the Rover 25.

In the past few weeks SAIC has stumped up another £80m or so to buy the rights to build the Rover 75 and for ownership of the MG badge. It’s thought the Phoenix share of the joint venture is now around 25 per cent, with the other 75 per cent held by SAIC (and minority partner Nanjing Auto).

Production of the Rover 25 is due to end in the UK later this year, before the operation is moved to a new site north of Shanghai. The K-series engine manufacturing operation will be shipped out next year, building engines ranging from 1.1 litres to a new 2.0-litre unit as well as the 2.5 KV6. The revamped L-series diesel will continue to be made in the UK.

The 75 production line will be split, with China building a moderately stretched version of the 75, while Longbridge sticks with the standard and long-wheelbase 75s. 45s will also continue to be made in the UK until the car is phased out.

MGR’s factory site is also being redeveloped, with the West Works site that makes bodyshells for the 25 and 45 due to be closed in early 2006.

Phoenix Venture Holdings will be left with the ownership of the TF roadster, the SV supercar, MG Sport and Racing and the deal to import the CityRover from Indian maker Tata. It will also be responsible for the pension fund and redundancy cover for MGR’s workforce. Ironically, it will have to lease back the right to use the MG badge.

Change is coming…

An correspondent, March 20

Longbridge car production is saved… Powertrain – we’ll wait and see…

THE Shanghai Automotive Industry Corporation and MG Rover are now tantalisingly close to signing the deal, which will secure the long term future of the the Rover marque, and also see continued car production at Longbridge – and even though there will be losses, Longbridge will stay in business.

Sources close to Longbridge have revealed that the SAIC/MGR Joint Venture is now ‘all but signed’, and because the JV is so complex, the deal will only be formally announced once all of the contracts (and there are supposedly many) are signed – that way, MGR gets a ‘clean’ announcement, with no room for confusion or misrepresentation in the press.

The fine details of the JV are yet to emerge, but one thing is for sure – the transfer of manufacturing to China, which has already begun, will pick up speed. We already know that some of Powertrain’s production facility has been ‘packaged up and sent Eastwards’, and it is only a matter of time before this operation expands to meet body/car production.

The engine plans have already started to crystallize – the K-Series (updated) is said to move to China, and could well also be used in an Upcoming Ssangyong off-roader (that company is now owned by SAIC, and will become an MGR bedfellow), and the common-rail update of the L-Series, set to replace BMW’s unit in the 75, as well as power 25 and 45 diesels, is said to be moving to India as part of a deal with Sonalika. How the SAIC JV could affect this plan is unclear, but in all probability, it will continue as planned.

With the UK general election looming closer, it is in the government’s interest to see that this deal happens sooner, rather than later, and it has been working hard behind the scenes to offer as much financial inducement as it can – without actually spending a great deal of money. Gordon Brown’s visit to Shanghai a couple of weeks ago will have been used as an opportunity to reassure the Chinese (who have been said to be utterly shocked by the behviour of the UK media over the past three or four months).

But with the election more than likely taking place on May 5, the JV looks to become an election issue if it is announced in the next couple of weeks, as has been intimated to a source in Birmingham.

However the good news might be short-lived, because not only does it seem that engine production is heading Eastwards, but there are changes afoot for the plant, too. From October, Rover 45/MG ZS sub-assembly will move to the New West Works, alongside the building (framing) of 45/ZS and 75/ZT sub-assembly and building – finally making use of a huge, unused tract of floorspace in there, nicknamed the ‘football pitch’. MG TF remains unaffected – and a bright spot seems to be the launch (yet confirmed) of X120, or the TF GT as premiered late last alongside the Rover 75 Coupe.

Moving the 45/ZS’s BIW handling is a tidying of affairs, which will see the New West Building fully occupied, and the Old West Works can be then handed to its owners, Advantage West Midlands, next Easter for re-development, it is said, into a Business Park.

Plans for the 25 are less clear – as it has been said that BIW production preparation could cease at Longbridge at the same time. Meaning there could be job losses here as well as at Powertrain.

RD/X60, or Project Nexus, as it is known within the industry, is continuing all the same, and the Chinese injection of cash will see this car hit the showrooms on the targeted launch date of late 2006/early 2007. No new information about the car has not been forthcoming from Longbridge, but according to Autocar magazine, it will use the updated K-Series (K-Plus, we wonder?) and will feature the use of composite front and rear sections, including the tailgate – a productionization of Pininfarina’s Project “Double-Face” (alluded to exclusively on this site last August), we wonder?

Why the Chinese want MGR

Dominic O’Connell, The Sunday Times, 13 March

ON the third floor of a Shanghai skyscraper, tucked away in a dark corner above a gleaming new car showroom, sits the real reason for the imminent Chinese takeover of MG Rover, the last British-owned volume carmaker.

It is a battered-looking blue saloon, with a long nose and beetling eyebrow of chrome above the grille and headlights. Even car enthusiasts would struggle to identify it — it is a Shanghai, a Chinese-built car that in the 1960s was the preferred transport of the Communist party elite.

A few yards further on, the assembly of the first Shanghai is depicted in a heroic diorama complete with life-size mannequins. A Mao-suited official looks on as earnest workers pull up the car’s body with a rope sling. Fellow workers heave the engine under the chassis, ready to be bolted in.

The last Shanghai rolled off the line in 1991, but the company that made it, Shanghai Automotive Industry Corporation (SAIC), is now China’s biggest carmaker, churning out 617,000 vehicles last year.

It has nothing to call its own. It makes the cars in joint ventures with Volkswagen and General Motors. They are copies of VW and GM designs, and made to their manufacturing blueprints. SAIC’s own branding is limited to the Wuling, a line of commercial vehicles.

That’s where MG Rover comes in. SAIC, or to be exact SAIC Motor Company, a subsidiary of the SAIC Group, plans to form a joint venture with the British firm that will for the first time give it control of its own brand and its own designs, a deal it hopes will propel it towards its goal of being one of the big boys of the world motor industry.

Armed with Birmingham’s finest, SAIC will no longer have to make do with what its western partners want to give it.

SAIC officials are reluctant to talk about MG Rover. It’s easy to see why: the two companies may have agreed terms, but the Chinese group is owned by the city of Shanghai, and final approval of the investment must come from Beijing.

Chinese sensibilities have already been offended by the rash of headlines in the British press about the tie-up, particularly last year when MG Rover bosses made public comments on how confident they were that the deal would proceed.

Despite the official reluctance to comment, sources in Shanghai said they hoped for an announcement confirming the deal in four to six weeks. The details are sketchy, but it is thought SAIC will form a joint venture with MG Rover in which two Chinese organisations, SAIC and Nanjing Auto, will hold a 70% stake, with the former being the main investor. Underneath this joint venture, which will act as a holding company, there will be two more joint ventures, one for the British operations and one for the Chinese.

SAIC is expected to pay MG Rover about £200m — much less that the £1 billion mooted recently — £67m of which was handed over last year. In return it will receive the rights to the Rover brand name, Rover’s K-series engine technology, and the rights to make Rover models in China. The partners will also commit themselves to designing and building four new models, the first of which will be a medium-sized car.

Some 2000 jobs are likely to be lost in the Midlands, mainly from the transfer of the K-series engine plant. It is not clear which of the British company’s existing models will move to China, but industry experts believe that SAIC’s payment last year has secured it the Rover 25, a small car. The other model the Chinese are believed to be interested in is the Rover 75, which is likely to appeal to Chinese tastes for larger, if inexpensive, cars.

The ticking bomb for Labour is the future of Longbridge, Rover’s historic Birmingham plant. The Phoenix Four, a consortium of Midlands businessmen led by John Towers, bought MG Rover for £10 from BMW in 2000 with implicit support of the government, and has since been heavily criticised for enriching itself while the company’s sales have slumped.

Rover has insisted that Longbridge will continue to produce cars, but unless the Chinese give a watertight assurance, particularly over its role in making the new models to be developed by the joint venture, more redundancies will be inevitable.

Without the Chinese investment, MG Rover’s future looks bleak. The company’s last accounts, which covered the 2003 financial year, pointed out that in the absence of the SAIC alliance, its continuing losses would put its survival at risk.

Ministers are eager to see the deal go ahead, and avoid the embarrassing prospect of an MG Rover collapse on the eve of the election. To increase the chances of success, they have given the British group breathing space by offering a holiday on Vat and corporation-tax payments, and are prepared to offer the Chinese regional assistance grants for investing in Britain.

This top-level wheeling and dealing is a far cry from SAIC’s origins. It was founded as a component maker in 1958, producing parts for the agricultural machinery that was vital to China’s reform. It started to make tractors in the 1960s. In 1985 it signed its first joint venture, with VW, whose Santana, a 20-year-old design, is China’s biggest-selling model. In 1997 it teamed up in a second joint venture, with GM.

The Shanghai company occupies a key position in the world’s fastest-growing car market. The Chinese bought 5m vehicles in 2004, and this year China will pass Germany to become the world’s third-largest car market, and overtake Japan next year.

SAIC is clear about its strategic goals. Its spokesman, Zhu Xiang Jun, said that 90% of the passenger vehicles on the road in China were foreign makes. “We have to have our own brands. And we want to acquire and develop a bridgehead for international expansion.”

A genuinely home-grown product is not on the cards. “To start our own brand from scratch would be too slow and too expensive,” he said.

SAIC has already been active outside China. In October 2002 it paid $59.7m (£31m) for a 10% stake in Daewoo Auto, the Korean manufacturer now controlled by GM, and last year it paid $500m for a 48.9% but controlling stake in Ssangyong Motors, another Korean firm. A Shanghai newspaper this week quoted Hu Mao Yuan, SAIC’s chairman, as saying that part of the company’s plan was to use Rover engines and Ssangyong’s expertise in sports utility vehicles to launch a 4×4 for Chinese and export markets.

Analysts said SAIC’s desire to go it alone was understandable, but questioned the choice of MG Rover as an acquisition target, pointing out that the British company did not have the resources of a GM or Volkswagen.

But when buying car companies, MG Rover is one of the few shows in town. Experts said there were hardly any big-name brands up for grabs. Only Lancia, part of the Fiat empire, was thought to be available, although it was likely that Fiat would be interested only in selling some production assets, not the famous name itself.

Of the brands that have been sold in recent years, many are British. Rolls-Royce, Bentley, Aston Martin and Jaguar have all passed into foreign hands.

SAIC may see MG Rover as an integral part of a wider financial picture. Although the Chinese group refuses to confirm its intentions, it has retained NM Rothschild, the British investment bank, to advise it on a float in Hong Kong. The addition of MG Rover to SAIC’s two other foreign interests would give it something extra to attract investors.

It might also be the first of a new type of Chinese investment in the outside world. Previous acquisitions have tended to be in high-tech manufacturing industries, such as Lenovo’s recent purchase of IBM’s personal-computer business, a deal confirmed last week. Western industrial companies, hamstrung by their pension and healthcare costs, and further weakened by low-cost competition from Asia, might be all too willing to fall into the arms of Chinese suitors.

“It’s a perfect match. The western companies have the technology, and the Chinese have the money and the low-cost manufacturing base,” said one Shanghai-based banker.

Posted in: AROnline News
Keith Adams

About the Author:

Created in 2001 and watched it steadily grow into AROnline. Is the Editor of Classic Car Weekly, and has contributed to various motoring titles including Octane, Evo, Honest John, CAR magazine, Autocar, Diesel Car, Practical Performance Car, Performance French Car, Car Mechanics, Jaguar World Monthly, Classic Car Weekly, MG Enthusiast, Modern MINI, Practical Classics, Fifth Gear Website, and the the Motoring Independent... Likes 'conditionally challenged' motors and taking them on unfeasable adventures all across Europe.

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