Car strategy: German parent reveals ambitious plans to take range upmarket and increase production
BMW plans to increase production at its Rover subsidiary by a half to 750,000 cars a year as part of an ambitious £3bn investment programme that will see the model range completely overhauled, slimmed down and moved significantly upmarket In his first appearance since taking over as Rover’s new chief executive on 1 September, Dr Walter Hasselkus also said that BMW intended to use common engines and electronic systems for both marques and shave at least £350m from their combined annual component expenditure of £14bn.
However, the expansion in car output, which is likely to be accompanied by the building of a £500m engine plant in the West Midlands, will not be matched by a similar increase in Rover’s 39,000-strong workforce. Overall, BMW has set Rover a target of improving cost efficiency by 4 per cent a year and becoming profitable under German accounting rules from 2000 onwards.
Dr Hasselkus, who is also on the main BMW board and formerly ran its motorcycle division, indicated that Rover’s car range would be cut from six to three models, while the number of platforms used to build vehicles across the Rover group would be reduced from 11 to seven.
The aim is to complete the overhaul of the model range in 10 years’ time. BMW has already announced that it will spend £400m on a new Mini, which will also be used as the platform for a replacement for the Rover 100 or Metro as it used to be known.
The Rover 200 and 400 series will be replaced by one model as will the 600 and 800 series, while the MG will remain a distinct platform. Meanwhile Land Rover will expand production through the launch next year of a mini- Land Rover to compete with the likes of Toyota’s Rav4.
BMW has already announced investment of £1.5bn in Rover and will spend the same amount again by the end of the decade. Investment is running at £500m a year – double the amount spent by British Aerospace when it owned Rover. Although Rover will not be in profit for a further four years, Dr Hasselkus defended the huge sums being invested. “BMW is taking a long-term view. We are not short-term thinkers and that means investing heavily for the future. To be where we want to be in 2002 we have to invest.”
He added that if it wanted, BMW could get Rover into profit within two years but that would be at the expense of investment in facilities such as engine plants and paint shops. He also said that German accounting rules, which allowed it to translate currencies at the highest rate and depreciate capital expenditure upfront, made a difference of £200m a year to Rover’s published profit and loss figures.
The ambitious model replacement strategy and the high levels of investment mean that the cars Rover will produce will be significantly more expensive. Dr Hasselkus said that even the new Mini would be an upmarket car with a price tag to match. The present model costs just under £9,000.
Dr Hasselkus said he was optimistic that the new engine plant would be built at Hams Hill in the West Midlands between Rover’s Longbridge and Solihull plants, provided the Government agreed to provide state aid.
The Austrian government, which is vying for the investment, is prepared to offer £60m in aid and BMW is looking for something similar to site the plant in Britain. “We are not blackmailing the Government by saying unless you put £50m on the table we will not come to Britain. But there has to be an offer which makes it financially viable for us to come here,” he said.
On quality levels he said Rover still had some way to go to match the standards of BMW. “It has improved over the last couple of years but it is still not where we want it to be.”
However, he said that was not feasible for some models. “People over at BMW tell me that the Mini should be brought up to BMW quality but I tell them they must have lost their marbles because the Mini is a car that was launched in 1959. There is no comparison.”