Archive : Offer for Weak Rover: What’s the Allure?

Special to the New York Times

As acquisition candidates go, the Rover Group P.L.C., Britain’s largest auto maker, is hardly a prize.

Indeed, most analysts see British Aerospace P.L.C.’s proposed purchase of Rover, which is known for its Range-Rover, Land-Rover and Sterling models, as a big gamble with few obvious benefits – although its current owner, the British Government, would disagree.

Defending the move, British Aerospace officials said the two companies can share design and manufacturing technologies. Besides, they add, they expect to buy Rover for a song. British Aerospace is expected to demand that the Government write off Rover’s $1.2 billion debt and sell the ailing company to it for no more than a few hundred million dollars.

To be sure, if Rover can be revived – and its performance is improving – the purchase could give British Aerospace a needed buffer against the steep development costs of its jet fighters and Airbus commercial airliners. The Logic Is Questioned

But reflecting the view of many analysts, John Lawson of the Nomura Research Institute in London, said: ”Politically, this is an ideal solution because it keeps Rover British. But there is not much industrial logic to it.”

British taxpayers have pumped more than $5 billion into Rover over the last decade only to get a steady stream of losses in return. In his announcement on Tuesday of the Government’s plans to negotiate the sale, Lord Young, Britain’s Trade and Industry Secretary, acknowledged that the auto maker ”bears the scars of many years of decline and neglect.”

For years, Rover’s fate has been a sensitive political issue. Continued subsidies for the deficit-ridden auto company have run against the grain of Prime Minister Margaret Thatcher’s free-market philosophy. But tentative plans to sell Rover operations to the Ford Motor Company and then to the General Motors Corporation two years ago were abandoned following fierce political opposition and a groundswell of British nationalism.

Political pressure could not be ignored because Rover, though now a fraction of its size in the early 1970’s, still makes seven of every ten cars produced in Britain and buys $3.5 billion worth of parts a year from 2,000 British suppliers.

So the British Aerospace bid – the terms of which will be negotiated over the next two months – is being hailed as a ”British solution” to the Rover dilemma. For the Thatcher Government, the merger represents a way of turning an industrial problem child over to the private sector without having to try to unload it on individual investors.

Regardless of ownership, Rover faces daunting challenges, although it has made impressive strides in recent years.

During the 1980’s, and especially under J. Graham Day, a 54-year-old Canadian who was brought in as chairman in May 1986, Rover has streamlined its manufacturing, centralized its management and sold off its truck and bus operations. It has invested heavily in automation and sharply improved productivity, from 6.5 cars per worker per year in 1977 to 14 cars per worker in 1987 – a level competitive with most of its European rivals. ‘It Has a Chance’

The company is expected to post an operating profit for the 1987 year, which would be its first in years.

”The company has improved remarkably under Graham Day,” Ewan Fraser, an analyst for James Capel & Company, said. ”If Rover can get its models and marketing right, it has a chance.”

Rover today, however, is far better at making cars than at marketing them. There are bright spots. Its four-wheel-drive vehicles are selling briskly, with the top-of-the-line Range-Rover costing about $38,000. It appeals to affluent outdoors enthusiasts on both sides of the Atlantic.

But in its basic passenger-car business, Rover occupies a precarious middle ground: It does not have the luxury image of Jaguar or Mercedes-Benz, yet it cannot compete with Europe’s high-volume producers like Fiat, Renault and Volkswagen.

The high-volume route seems impossible. As a result, Krish Bhaskar, the director of the University of East Anglia’s motor research unit, argues that Rover must strengthen its position in more expensive cars. ”Unless it can do something like Jaguar, carve out a niche and a healthy export market, Rover will have trouble,” he said.

Rover has moved into the lower end of the luxury market with its 800 model, called the Sterling in the United States, which it developed with the Honda Motor Company of Japan. The Sterling was introduced in America in February 1987 and represented the first Rover car to be marketed in the United States since 1980. Rover is hoping to capitalize on the cachet of the company’s prestigious nameplates of the past, such as Austin, Morris, Triumph and MG.

So far, the Sterling, which sells for $20,000 to $25,000, has received a mixed reception in the United States. By the end of last December, only 14,000 units had been sold in the United States, making it unlikely that the company would reach its first-year goal of 20,000. ‘The Right Direction’

”Rover is heading in the right direction,” Mr Bhaskar said, ”but it’s still uncertain how successful they will be.”

Another uncertainty is just what role Honda will play in Rover’s future. Apparently interested in keeping its options open, the Japanese company has consistently declined to take an equity stake in Rover.

The collaboration, which began in 1980 with the Acclaim model, has been crucial to keeping Rover’s car-development costs down. The Rover 800/Sterling is a British hybrid of Honda’s successful Legend series. And the two companies have also jointly developed a midsize car, the AR8, which will be introduced in the spring of 1989.

The value of Honda’s support is demonstrated in Rover’s program to develop on its own a replacement for its compact model, the Metro, by 1990. The cost is estimated at $500 million – more than twice the cost of the jointly developed Rover 800.

Keith Adams

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