News Analysis: Today the UK group revels in the hype of a new launch, but this is just the first stage of a long and tough road to revival
Michael Harrison Business Editor
TODAY THE most important Rover car in almost a quarter of a century will go on sale in Britain. To the accompaniment of a special musical score written by rock star Dave Stewart and performed by the Royal Philharmonic Orchestra, the Rover 75 will be launched on the banks of the Thames next to Tower Bridge in London.
Vanessa Mae, the world-famous violinist, and the RPO will put on three live performances throughout the day, the last one of which will be beamed live into 350 Rover dealerships around the country. Hype and new car launches go together like strawberries and Wimbledon, but rarely can there have been a launch so critical to a company’s fortunes, perhaps even its survival.
The last time Rover celebrated the launch of an all-new, all-Rover car, the SDI executive hatchback, its UK market share was brushing 35 per cent. Today, under the ownership of BMW, it has dwindled to 6 per cent. Losses this year look likely to surpass even the pounds 600m reported for 1998.
Will the introduction of the 75, a retro-style model that borrows heavily from Rovers of the past, mark the turning of the tide? The initial press launch of the Rover 75 at last October’s Birmingham Motor Show could not have been a bigger public relations disaster, overshadowed as it was by BMW’s threat to close the Longbridge car plant in Birmingham unless the unions agreed to radical new working practices.
Since then Rover has recovered some lost ground, with the 75 being voted What Car magazine Car of the Year. But producing a handful of cars for the world’s motoring press to test-drive in exotic locations is one thing. Making 120,000 of them a year to the highest quality standards and then selling them in one of the most competitive segments of the car market is quite another.
So the real test begins today. BMW is about to find out whether the pounds 700m it has invested in the model and a new factory at the Cowley site in Oxford is money well spent or yet more money down the drain.
Jim Macdonald, the managing director of Rover Cars (UK), says there is already a three-month order backlog for the 75 and he confidently expects the pounds 6m advertising campaign for the car, which starts on television tonight, to bring a lot more customers into the showrooms. “The main thing we want to do is provoke a reaction,” he adds. “This is not like any other car on the market, it is not another run-of-the-mill model.”
On that, at least, everyone is agreed. John Lawson, motor industry analyst at Salomon Smith Barney, says: “It captures the tradition and the emotion that BMW set out to recreate when it first bought Rover. It is a less ostentatious vehicle than a BMW and because it has that rather understated look it also avoids trespassing on the territory occupied by BMW’s own range.”
But Mr Lawson cautions that the 75 is entering a fiercely competitive part of the market where the competition, in the shape of the Audi A4, the Mercedes C class and the Alfa 156, is very powerful.
Crucial to the success of the 75 will be Rover’s ability to iron out the quality problems that have afflicted previous models. Mr Macdonald says the 75 is built to BMW standards of quality. But others sense continuing teething problems on the line at Cowley and point to the unusually long period between the unveiling of the car and the start of commercial production.
Rover, to the surprise of some, has also decided not to introduce the basic model in the 75 range until the end of the year. The 75 will vary in price from pounds 18,300 for the 1.8-litre Classic to pounds 26,300 for the 2.5- litre Connoisseur. But the cheapest model available for now will be the 1.8 Club at pounds 19,500.
Garel Rhys, professor of motor industry economics at Cardiff University Business School, says: “You can’t imagine Ford doing something like this. It is a pity Rover couldn’t introduce the cheapest model to begin with because it makes the 75 look a bit pricey against the competition.”
Production at Cowley is running at 1,660 a week now and the plan is to build up to 2,800 a week by the end of the year – an annualised running rate of 130,000. Of those, about 30,000 are earmarked for the UK and the rest for overseas markets, led by Germany.
As total sales of Rover cars will only be about 250,000 this year, that represents half its total output. Whether Rover will make any money on them is another matter. The company had been hoping for an exchange rate of around DM2.60 to the pound, but at the moment it is nearer DM3. According to some forecasts, Rover could lose as much as pounds 860m this year.
Making a success of the 75 model will be a tall order. And if Rover does pull it off, then it will have to repeat the trick twice over with the next new models due off the production line – a new Mini due out at the end of next year and the replacement for the Rover 200/400 series, the R35, which is expected in 2002.
In the intervening period the 200 and 400 models will both get facelifts – codenamed respectively the Jewel and the Oyster – which are due to appear at the turn of the year.
But no-one is in any doubt that all three of Rover’s brand new models need to prove themselves a success. The pounds 150m of cost savings and 10,000 job losses that BMW is pushing through at Rover will go a long way to closing the 30 per cent productivity gap with its car plants in Germany.
But, as Mr Lawson notes, it will also need a huge revival in Rover’s production volumes in order to recover the capital it has invested – some pounds 2.5bn so far, with a further pounds 1.7bn earmarked for the R35. This will not happen until the company is in a position to offer a full range.
Meanwhile everything hangs on the 75 model. “There are plenty of BMW shareholders who wanted to see Rover Cars disposed off and they will become more vociferous if the 75 fails to deliver,” says Professor Rhys. “In that case a sale to General Motors or Volkswagen is something that BMW would have to look at very seriously.”