David Morgan regularly sends in fascinating, well-researched historical features, often focusing on key models and moment in BL/A-R/Rover Group history. What follows is an excellent dissection of events leading up to MG Rover Group’s demise in 2005, and is written in a very accessible style. Read on, discuss and draw your own conclusions (thanks, David!)…
AROnline’s readers will be well aware that, since April 2005, there have been numerous theories about the factors which led to the downfall of MG Rover Group and that a subsequent Government Inquiry cost British taxpayers some £16 million. Many critics – lay and academic – have taken the opportunity to focus on the company’s failure based on prominently publicised information relating to the Directors’ remuneration package and the inability to replace key models such as the Rover 25 and 45.
While these points are valid, few critics have considered the immense efforts made by employees of the renamed MG Rover Group to try and give it a reasonable chance of survival. Before we look at these efforts there is the need to consider some of the implications of the break-up of the Rover Group by BMW Group in the spring of 2000.
Setting the Scene: The English Patient
During the six-year period when BMW owned the Rover Group, both Rover Cars and Land Rover Ltd. had become increasingly amalgamated. This ranged from sharing component synergies to the design and engineering facilities at the new Gaydon Design and Engineering Centre from 1996. The alliance even extended to using the same National Sales Companies and distributors in some export markets where it was not uncommon to find the two franchises alongside each other in the same dealership. The separating of the two companies from May 2000 would inevitably impact on the ability of Rover Cars (renamed as MG Rover Group in September 2000) to establish alternative partnerships in the short term in order to assume responsibility for sales and distribution in export markets.
Looking at both companies, Land Rover had enjoyed a continuous increase in sales throughout the 1990s due to the growing success of the Land Rover Discovery and new P38A generation Range Rover in export markets and launch of the more recent Freelander. Despite this, Land Rover’s level of productivity remained significantly below that of the Cars division, while ongoing quality issues had translated into high warranty claims.
In contrast, Rover Cars had experienced falling sales in the latter half of the 1990s due to a premium pricing strategy for its models, the withdrawal from the lucrative fleet sales market and macro-economic factors such as a rise in the value of Sterling. Moreover, models such as the 100 Series (nee Metro) and the remaining variants of the R8 200/400 programme had been discontinued, with no plans to replace them. Together with the sales launch of the Rover 75 to replace both the 600 and 800 Series being delayed until June 1999, these factors played a major part in Rover Cars’ sales slumping by thirty percent in 1999 to 211,500 cars.
Linked to this, in the early 1990s, the Rover brand as the core brand in the Cars division had enjoyed a growing reputation for producing some well-received performance ‘halo’ variants. This had helped to raise the aspirational appeal of the ‘lesser’ models in the brand’s product portfolio. However, under BMW’s guidance, the strategy for the Rover brand had increasingly focused on comfort and nostalgia through adages such as “Relax”. Together with the lack of more performance oriented ‘halo’ models this did nothing to emphasis any dynamic attributes of new models, such as the supremely competent 75, to a potentially wider customer market.
Under German accounting practices, the Rover Group was considered a loss-making concern. German accounting and auditing principles do not amortise investment in new products and working capital over the same length of time as Rover Group had been used to. Yet, it is worth remembering that, at a Group level, there had been massive investment in new products and production facilities for both Land Rover and Rover Cars in the period 1997-1998. This included the predominantly new Land Rover Discovery Series II and the all-new ‘Storm’ Td5 engine, both of which had been unveiled in September 1998. One month later there was the all-new ‘R40’ Rover 75 which had cost £700 million. Collectively they raised the accounting ‘losses’ of the Rover Group.
When Phoenix Venture Holdings (PVH) acquired the Rover Cars business in May 2000, BMW Group had agreed to sell it as a debt-free concern and provide a dowry of £427 million to PVH’s subsidiary company Techtronic 2000, formed in April 2000. This was the amount BMW Group had set aside to cover the anticipated cost of closing down the Longbridge operation should they have not found a buyer.
As part of the purchase agreement PVH also inherited the existing stock of approximately 40,000 unsold cars. This was potentially a liability for a company that still had to be assembling cars based on new orders, to enable it to keep its workforce gainfully employed. With such a large stock of unsold cars to dispose of, MG Rover Group had little option but to gradually release this stock at a discounted price through its dealer network over a period of eighteen months. This was done so as to not undermine the residual values of its current models in the short and medium term. Special offers were also offered to confirmed members of various recognized car clubs catering for MG and Rover.
Few critics can be in any doubt that these factors, and others, presented a major challenge for anyone contemplating saving a struggling car manufacturer whose future was now wholly dependent on its ability to secure a long-term collaboration or licensing deal with another manufacturer.
Post-BMW: The Need for Restructuring
At this point, few observers realise that it takes more than just a seemingly large amount of cash, a collection of tangible assets and the goodwill of a loyal workforce to survive in a hostile market. Even fewer realise that many of the aforementioned problems experienced by the Rover Cars division during the BMW ownership era still remained.
For starters, the £427 million dowry was actually to help keep the company trading as no active company can trade with no funds. This dowry enabled MG Rover Group and its associate companies to do this and, more importantly, keep 6,300 employees in paid work for almost five years. From the outset, PVH were under no false illusions about the huge task that lay ahead. Alongside pursuing avenues for potential collaborative partnerships with other car manufacturers, they were creating new revenue streams from their existing product portfolio and assets as well as reducing overheads.
Consolidating operations on the one site at Longbridge was seen as a priority to reduce operating costs and improve efficiency. During the BMW ownership era it was common practise for employees to travel to various sites across the Midlands to attend meetings with different departments. Further man-hours had also been spent flying to and from Munich for meetings held at BMW’s headquarters. Within twelve months MG Rover Group had relocated its headquarters and customer service centre to Longbridge. The MG Rover Group approach clearly offered immediate benefits in reducing both costs and lost time through travelling.
During the same period, a new Design and Engineering Centre was established at Longbridge given that the original facility at Gaydon had been sold to Ford as part of its deal with BMW Group to buy Land Rover. The loss of the Design and Engineering facility at Gaydon coincided with a number of Design Engineers opting to remain working at Gaydon with Land Rover. Despite this, it did not have a marked impact on the ability of MG Rover Group’s Design Engineers to deliver engaging new variants and even showcase a number of interesting design concepts, to reaffirm the company was considering its future beyond the current model line-up.
Optimising the use of existing plant equipment such as production lines was clearly an area that presented an opportunity to improve overall efficiency. The transfer of the Rover 75’s production facilities to Longbridge commenced in August 2000 and had taken just eight weeks to complete rather than the envisaged 12 week period, thus representing a major civil engineering achievement. The completion of this transfer had resulted in no disruption to the production of the 75 to meet new orders and would also coincide with the accommodation of a further bodystyle (i.e. the Tourer), due to follow in 2001.
To make way for the 75’s assembly line in Car Assembly Building 1, production of the 45 model would be transferred from its own dedicated track to the neighbouring assembly line occupied by the 25. This was completed by early August 2000 and enabled the two models to be assembled on the same track. Amazingly, some members of the press misread the reasons behind this and reported that the 45 was about to be killed off!
As already noted, MG Rover Group needed to establish new National Sales Companies and distributors in order to re-establish sales presence in a number of export markets. Many of their previous arrangements had involved dealerships that had been amalgamated with either Land Rover or BMW. This would be an ongoing task. By November 2004 MG Rover Group had managed to establish dealers in 52 international territories outside the UK and Western Europe.
A further demand on the dowry was to fund the development programmes for creating more driver-focused MG saloon ranges from the current Rover range, followed by an effective facelift of the MGF into the TF to help reduce the decline in sales of the existing models.
Using the Rover range as the basis for a range of supplementary MG sports saloons was clearly a quick and effective strategy to adopt in order to sustain sales in the short and medium term. The Rover name had been commercially impaired during the latter part of the BMW era based on the aforementioned issues, but also because the “Rover” name rather than specifically Rover Cars or Rover Group had been regularly used in a ‘lazy’ fashion by the press as the sole corporate business reference. This approach would ultimately have a bearing on the Rover brand’s credibility and the sales of its models, particularly when under the media spotlight where most of the news stories had focused on the company’s uncertain future under BMW’s ownership. The MG brand had not suffered quite the same fate and so was the ideal route for MG Rover Group to follow for generating new interest in the showroom.
However, it could be argued that efforts to repair the credibility of the Rover brand were minimal at a time when it was still considered the main brand for attracting the bulk of sales – particularly in export markets where the brand was more favourably received. Until the summer of 2003, the emphasis on new product actions had remained focused on expanding and enriching the MG brand. Despite this, figures released by the Society of Manufacturers and Traders confirm that for the years 2002 – 2004 when the full MG Z range was on sale, they were consistently outsold by the Rover models. Only in the latter half of 2004 did the MG ZR become the company’s best-selling model.
The launch of the new 75 Tourer as the Rover marque’s first large estate car had taken just one year to reach the marketplace after its initial announcement and would go on to significantly expand the market for the 75 range. The MG Z range had also been delivered on time and with a phased introduction programme for some of the engine choices and options, so as to maintain showroom interest. This, together with some slick advertising in print publications and on the television capturing a more spirited essence for these Rover-derived models, helped reduce the rate of sales decline over the next few years.
At a dealership level, MG Rover Group reversed the legacy strategy that had restricted the sale of the MGF sports car through a select range of Rover dealers. From the autumn of 2000 the MGF would be sold through all MG Rover Group dealerships. The MGF range was also broadened in January 2001, with a new entry level 1.6-litre powered variant and a more driver-focused 160Ps Trophy SE version included at the opposite end of the line-up.
The launch of the MG TF in 2002 not only represented a clever update to the MGF where changes to steel body panel pressings were limited to just the rear wings, boot-lid and sills, but also introduced a more driver focused rear coil spring suspension design. As a consequence this brought to an end the royalty-based agreement for using the previous Hydragas units, resulting in a significant cost saving.
Partnerships and Future Ambitions
In tandem with the in-house development programmes involving existing models and re-establishing MG as a global brand beyond just one model, MG Rover Group pursued its strategy for replacing the medium-sized 45 model. MG Rover Group had initially approached its former partner Honda in 2000 with an interest in using existing components for the recently discontinued Civic Aerodeck estate for a new variant in the 45’s line-up. Honda, though, was not interested in reviewing its existing licensing arrangement with MG Rover Group, or in entering into discussions about other projects.
A similar avenue for a potential partnership with Fiat had been explored in approximately 2002 – that would have involved using the recently-launched Stilo model as the basis for a new medium-sized Rover. Very little has been documented about these talks and why they did not lead to an agreement being reached. However, it is worth noting that, at the time, Fiat was also undergoing massive restructuring, having recorded a loss of EUR 800 million. Therefore, the likely reason centred around the difference between the supply volume of major components being offered by Fiat and the level of demand by MG Rover Group, which together with the associated costs, did not make the proposal beneficial to both parties.
This was not the first time MG Rover Group had entered into discussions with Fiat. As early as 2000, personnel from Longbridge had travelled to Italy to discuss the prospect of fitting Fiat’s 1.9-litre JTD engine into the Rover 75, to replace the expensive-to-buy BMW-supplied M47R. A number of these engines were still being evaluated in the Rover 75 as late as 2004 and were noted for their comparable levels of refinement to the M47R.
The lack of an impending partnership saw MG Rover Group pressing ahead on its own with the new medium-sized car project, in the hope that forming a joint venture in the future would enable it to reach the market sooner rather than later and also unlock the opportunities for further variants. To be derived from the same platform as the Rover 75, the new model codenamed RDX60, was initially conceived in-house by a team of stylists led by Peter Stevens.
With Europe providing few opportunities for joint ventures, MG Rover Group turned its attention to the Far East. This was perhaps one of the more promising avenues to pursue, as China was enjoying massive economic growth compared to the rest of the world, resulting in large profit-making manufacturers looking for new opportunities to distribute their products through established distribution networks in new export markets.
For MG Rover Group, a potential collaborative venture would not only need to provide funding for new initiatives but also offer the prospect of major components being manufactured in China, therefore taking advantage of its inexpensive labour. For the other party, there was the appeal of MG Rover Group’s modern product range that had the potential to be built under license in China for sale in that market.
A promising joint venture with China Brilliance Industrial Holdings (CBIH) was announced in March 2002 and would have seen a long-term strategic alliance being formed to finance, develop, manufacture and market new models. CBIH had a proven track record for producing cars for other manufacturers such as General Motors and BMW, but had not yet fulfilled its aim of producing its own range of cars.
The planned alliance would see MG Rover Group vehicles such as RDX60 being produced in China for sale in that market, while MG Rover Group itself would be given the opportunity to manufacture and market CBIH-derived vehicles at Longbridge. Design and engineering for the new medium-sized model, followed by a new small car, would largely be undertaken by Longbridge-based engineers. However, by 2003, the venture had ended.
MG Rover Group had also identified early on that customers were expressing an increasing desire to specify their new Rover or MG in a more bespoke colour or trim finish, to reflect more of their own personality. The Monogram personalisation programme not only recognised and delivered the opportunity for bespoke colour and trim on mainline-built cars competing in volume sectors of the market, but also proved to be profitable.
As an independent manufacturer, MG Rover Group’s quest to return to profitability continued to be affected by the cost of some of the components bought in. One initiative that looked to reduce the reliance on some of these suppliers was Project Drive, a cost-savings led programme that evaluated the cost of nearly every component used. Although considered to be a contentious move, it nevertheless proved to be a necessary route to pursue to enable significant cost savings to be made. For example, items such as in-car entertainment units were replaced with alternative makes already built to an off-the-shelf specification.
MG Rover Group also replaced the R65 gearbox used in the majority of K-Series-powered small and medium models with a Getrag-supplied IB5 transmission, as already found in the Ford Fiesta. The R65 had been used by Rover since late 1989, although BMW had retained its manufacturing rights and production plant when they sold off the Rover Group in 2000, as they planned to use it in the new MINI. While the customer did not notice this change introduced in June 2003, for MG Rover Group it represented an important cost saving.
Beyond replacing the R65 transmission, MG Rover Group had also been exploring the potential of producing a six-speed version of the PG1 transmission built at the No. 5 Machine Shop, South Works. A PG1 6-speed synchromesh Quaife gearkit, including final drive, has been offered by Quaife for a number of years for the MG ZR.
In February 2004 Powertrain Ltd. had signed a licensing agreement with specialist research and development company Antonov plc, to produce the new 6-speed electronically controlled, hydraulically actuated, TX6 automatic gearbox for use in small and medium sized passenger cars. The two companies were also working to complete the design and development work of two new dual-clutch six and seven-speed transmission systems that may well have been introduced to replace expensive bought-in units. This potential partnership between Powertrain Ltd. and Antonov plc offered an interesting opportunity to move transmission technology forward and also keep MG Rover Group’s models attractive.
Replacing the BMW-supplied M47R diesel engine in the Rover 75 with an alternative was also attracting a number of interesting possibilities at the time the company was placed into administration. Aside from the aforementioned Fiat JTD engine there was the in-house developed G-Series engine. This was a new generation of common-rail diesel engine based on the L-Series unit and initially intended to replace it in the small and medium-sized saloons towards the end of 2005. Development of the G-Series had largely been carried out by Powertrain Ltd. in partnership with Sonalika of India, who had paid for most of its development costs. Sonalika would have been responsible for manufacturing many of its key components in India while assembly was to have taken place at both MG Rover Group’s East Works engine plant at Longbridge and by Sonalika in India, to serve its own requirements.
Early indications suggested the G-Series might have eventually taken on the role of an entry-level diesel engine in the Rover 75 to replace the standard tune 115Ps M47R. Meanwhile, a more powerful ‘halo’ engine, likely supplied by another manufacturer, would have raised the profile of the 75 as even in uprated 131 Ps form, the M47R was beginning to look outclassed by the competition. The benefits of replacing the standard tune M47R with the G-Series would have delivered significant cost savings. In the long term there were also ambitions to develop a twin-cam 16-valve version producing around 160Ps.
One interesting development of the KV6 engine was project ‘Eagle’, a new 2.9-litre version that would have likely produced around 220Ps in naturally-aspirated form. This in-house project was being developed by Powertrain Ltd. to enable both the Rover 75 and the MG ZT to move onwards and upwards in the Compact Executive market sector, with an announcement expected around 2007.
A more potent version employing twin turbos was being evaluated as a possible successor to the Ford-supplied 4.6-litre V8 in the rear-wheel drive versions at the time the company was placed into administration. The 4.6-litre engine in its current form would have needed further re-engineering to meet the more stringent Euro V emission legislations; something Ford had no plans to undertake. A move to a forced induction KV6 would not only have met both the performance and emission requirements, but would have potentially presented another opportunity to reduce costs. Such a route would also have mirrored a similar strategy now employed by Audi for the latest S4 model.
Slightly more relevant to current trends was the Rover 75 Countryman Tourer, a hybrid vehicle offering conventional combustion power up front and electric motors at the rear. This new derivative had been further developed from the MG TF HPD (High Performance Development) which itself had been heavily funded by a European grant. Likely to have been just 12 months away from being unveiled, the Countryman Tourer would have given MG Rover Group a worthy third place alongside Toyota and Honda for bringing hybrid technology to the marketplace.
The Rover 75 Coupe was an enticing proposition to raise the aspirations of the Rover brand and provide it with a worthy stand-alone flagship model. MG Rover Group Designers under the guidance of Peter Stevens had taken a mere ten weeks to undertake this project. Unknown to the outside world the 75 Coupe would also feature an updated interior featuring a revised dashboard fascia and door fixtures, which was completed in early 2005.
While the Coupe represented a stunning proposal for the Rover brand, the cost of re-tooling the then six year-old 75 for over 50 percent new body pressings did not making for a convincing business plan. Instead, it was more an indication of what might have been possible following a collaboration deal with a potential partner such as the Shanghai Automotive Industry Corporation and the model having sales potential in China as well.
The End of the Road
The goal of Phoenix Venture Holdings to return MG Rover Group to profitability in the medium term was undoubtedly ambitious, with its ongoing survival resting on the ability to form a collaborative partnership with another manufacturer. Despite numerous attempts they had not managed to achieve this. In reality most car manufacturers were less interested in forging an association with a vulnerable concern but instead were quietly more interested in the potential opportunity to expand their market share and number of dealerships, in the event that MG Rover Group ran out of road. This certainly proved to be the case in the weeks following the company being placed into administration, with many former dealers being approached by Ford, Honda, Chevrolet, Kia and Mazda.
In the end there was only so much MG Rover Group could do with an ageing product range that was facing even greater competition from newer rivals. Competition that had the cost advantage of being produced in greater volume and in factories where overheads such as wages were lower and using components that could be shared with another car company. As a consequence, MG Rover Group was unable to generate sufficient sales in order to survive and create enough cash to fund a new model’s development.
Consider the ongoing efforts to develop an all-new medium-sized model and using the existing product range as the basis in which to enter new market sectors such as the car-derived van sector, not to mention create the crossover ‘urban on-roader’ segment. In addition, the achievement of actually reducing losses each year. Together they confirm that MG Rover Group had actually done remarkably well and also defied the predictions of financial experts who reckoned the company would last no longer than 34 months.
Over that near five year period MG Rover Group had been resourceful through working more closely with first-tier suppliers and with research, consultancy and support organisations, who could aid them with the timely and cost effective delivery of updates to the existing product line-up. Many of these companies would also be engaged in providing expertise for planned new products and engine projects and even more specialised build programmes such as the long-wheelbase Rover 75 and MG SV.
It is also worth remembering the vast talent that existed in the individuals at MG Rover Group, who were undeniably committed to the quest to deliver inspiring initiatives to aid ongoing survival. This was in spite of facing a number of setbacks and time and cost-led constraints.
The efforts of MG Rover Group’s Press and PR Department in particular merit a special mention as they literally went into overdrive from day one, delivering news and updates about new products and enhancements on a near weekly basis, to ensure the press had every opportunity to give coverage to MG Rover Group’s efforts. From a personal perspective, the team were always keen to engage with journalists and at the time were at the forefront of using web-based initiatives and features to aid the coverage journalists gave to MG Rover Group in the press.
Even when taking into account these and many other achievements and the commitment of the workforce, MG Rover Group’s efforts seemed to pale into insignificance when media interest and critics were actually more interested in the financial stability of the company and the remuneration package of the four Directors who had saved Longbridge from likely closure in 2000. This ultimately did little to promote support for the company and its products with the buying public. MG Rover Group (‘Rover’), it seemed, predominantly made headline news about its ongoing battle for survival.
Ten years on, perhaps now is the time for critics to move on from concentrating on MG Rover Group’s commercial failure and the morality of its Directors, to showing greater recognition of the valiant efforts of its 6,300 employees, together with partners in the supply chain and dealer network – for it is these parties who showed the ultimate commitment to maintaining volume car production at Longbridge.