Shares of German owner rise amid hopes of recovery
David Gow, Industrial Editor
A huge voluntary exodus of staff from Rover, the embattled car-maker, helped drag down first-half profits at BMW, its German owner, by more than a quarter, the group said yesterday. Net earnings at BMW fell 26.8% to 191m euros as Rover car sales fell by a third, hit by the strong pound, lack of models and reduced prices – and despite the prospects of record sales for both BMW and Land Rover.
However, shares in the Bavarian group rose steeply in Frankfurt – by as much as 3% at one stage – as investors’ optimism was boosted by BMW’s forecast that this year’s earnings would match those of 1998 and Rover had turned the corner. Rover, which lost £647m last year, refused to disclose its own financial results, prompting speculation they have worsened. But insiders insisted they were better than expected.
BMW’s chairman, Joachim Milberg, has said Rover will re turn to the black in 2002 and promised yesterday its second-half results would be “significantly improved” as sales of the new executive car, the R75, take off after its mid-June launch. The £700m R75, now with a sales backlog of three months, is being built at Oxford where up to 1,000 staff from the group’s Longbridge plant, near Birmingham, are temporarily employed. The Cowley plant has taken on a second shift and given up its summer break as production of the new car reaches 1,660 per week, on course to 2,800 per week by the end of the year. It now employs 3,500.
More than 5,500 employees have quit Rover voluntarily, the bulk at Longbridge. This is more than twice the level agreed by BMW and Rover unions in December’s ground-breaking deal on new working practices to save the UK’s largest car plant.
The Rover workforce is now 31,132 compared with 36,800 six months ago and 39,700 at the end of 1997. But, with unions and management discussing further efficiency gains and improved performance, it is expected to fall below 30,000 by the end of this year.
Rover output fell by nearly a half in the first six months to just 87,459 as the company stopped producing its 100, 600 and 800 series, ran down its 200 and 400 models before a total revamp and exited the car-hire business. Sales fell 33.5% to 114,364, with a 6.5% market share in the UK.
Even MG sales fell 25.4% compared with a 13.4% increase for the BMW brand and a 26.7% rise at Land Rover which now sells just 25,000 fewer units than the car division and sold more in the first half of this year than in all of 1994, the year BMW took over Rover. The Freelander, in its second full year of production, posted a 117% increase in sales to 35,900 units and is now the most successful 4×4 in Europe.
Analysts said that Rover had now been brought under control by the new management team at BMW, headed by Prof Milberg who replaced Bernd Pischetsrieder at a tumultuous supervisory board meeting in February which saw arch-rival Wolfgang Reitzle sidelined.
Rover insiders said the group was now at the transition point, with the bulk of redundancy costs taken in the first half. If the pound weakens against the euro, earnings are expected to improve dramatically. Sir Ken Jackson, AEEU general secretary, said: “It will take time to turn Rover around. It has happened at other car companies such as Vauxhall and it will happen at Rover.”