Top executives of German car maker BMW have for the first time suggested that they may have to close down their UK subsidiary Rover Group because of mounting losses. According to German newspaper Sueddeutsche Zeitung, BMW’s sales chief Henrich Heitmann is warning that the company may run out of time to achieve a turnaround at Rover.
Mr Heitmann told the newspaper on the sidelines of the Detroit Motor show that he “fears that we won’t have the time we need” to re-establish the Rover brand. He estimates that it may take eight to 10 years to do the job. BMW was currently not considering Rover’s closure, Mr Heitmann said, but he added: “Nobody can completely rule out this ultimate solution.”
Profit target may be missed
When Rover’s crisis came to a head in spring 1999, BMW’s news boss Joachim Milberg repeatedly stated that Rover had to get back into profit by 2002. BMW’s Henrich Heitmann says it was a mistake to replace all old Rover models with new ones at the same time. BMW group’s chief financial officer, Helmut Panke, though, is now dubious whether this will be possible.
He told Sueddeutsche Zeitung that “under current circumstances” Rover will not make the deadline. During 1998, Rover made losses of about 1.8bn Deutschmarks (£570m). Mr Panke said that the 1999 results would show losses that are “rather larger”.
Strong pound hurts
Mr Panke blames the strong pound for Rover’s troubles. At the beginning of 1999, one pound bought 2.8 Deutschmarks. Because of the weakness of Europe’s single currency, it now takes 3.15 Deutschmarks to buy a pound. This has made exports of Rover cars less profitable.
At the same time, Rover’s UK suppliers have become less competitive. The firm sources about 90% of car parts in the UK, but they cost 10-15% more than from suppliers on the continent. Mr Panke said that the situation is getting more difficult “month by month”. He said Rover would have to cut costs even further, by reducing the number of workers once again and force suppliers to lower prices.
During 1999, the company shed 8,000 jobs, 5,000 more than originally planned.