The BMC>MG Rover Story : Part Six – The 1980s – a decade of lost opportunities

Roy Axe, pictured in 1986 - he would be responsible for the change in the company’s design direction, and the eventual family identity that the company’s products shared. The appointment of Axe, replacing David Bache as the Director of design also acted as a spur for the company to upgrade their design facilities which were up to that point, rather past their sell-by date.
Roy Axe, pictured in 1986 – he would be responsible for the change in the company’s design direction, and the eventual family identity that the company’s products shared. The appointment of Axe, replacing David Bache as the Director of design also acted as a spur for the company to upgrade their design facilities which were up to that point, rather past their sell-by date.

Sir Michael Edwardes had left BL a much better position in 1982 than it had been in 1977 – this is an unarguable fact and despite the opinion of some of his detractors, he had produced tangible results. Whereas at the time of his arrival it looked as though the company was on the verge of closure (‘a 50-50 chance of survival’, in Edwardes’ own words), some five years later it was beginning to look as though BL had a future beyond government ownership. The problem of course though, was that in the course of his sweeping reforms of the company, Edwardes had had made some tough decisions, which would prove to be not only controversial, but also set the company on an irreversible course towards lower volumes.

In closing the factories at Solihull, Speke and Canley, Edwardes had ensured that BL were now tied to an upper production limit from Cowley and Longbridge of perhaps 700,000 per year. All of which meant that once returned to profitability, BL were never going to be in a position to return to their former levels of output experienced at the start of the previous decade. It also meant that the future for BL was very much tied with their profitability – if things were going badly, it would seem likely that the Government would finally call time – and if things started to go well, a small (in Global terms) producer like BL would be vulnerable to the advances of a predatory rival. This may have sounded bad, but it was precisely the plan that the Government wanted to follow because it would mean that the finances of the national car producer would no longer be their concern.

But in September 1982, it was time for BL and the Government to say goodbye to Sir Michael Edwards (also referred to in the press as ‘Little Moe’ and ‘The Electric Mouse’). There had been rumours in the press that George Turnbull and Filmer Paradise, who were at Talbot UK at the time, were in the running to replace Edwardes, but when it came to it, Edwardes had already ensured that his chosen management team would take over the reins. Edwardes ensured that he obtained Government approval for his new structure – and this was duly signed off by the then Industry Secretary Patrick Jenkin.

Edwardes makes way for Sir Austin Bide

The company looked like this after the departure of Sir Michael Edwardes: effectively BL was split into two - Ray Horrocks looking after the cars, and David Andrews, the trucks and Land Rover.
The company looked like this after the departure of Sir Michael Edwardes: effectively BL was split into two – Ray Horrocks looking after the cars, and David Andrews, the trucks and Land Rover.

Sir Austin Bide would become the new part-time Chairman of BL, the responsibility for which, he would share with the Pharmaceuticals group Glaxo – for which he would pick a tidy salary of £65,000 per year – in addition to the £63,000 he was already earning for his role in his other company. Unlike his predecessor, Bide was not a public figure and it was because of his financial sector credentials that he was chosen for the job – not for his ability to stir up the media. Edwardes chose Bide back in 1977 as one of the financial figures that he wanted to sit on the BL Board – changing the flavour of upper management at BL so that it would appeal more to the City than it may have done in previous years, when the emphasis was more on a motor industry boardroom.

Ray Horrocks would find himself in the BL Chief Executive role, formerly that of Edwardes (who was Chairman and Managing Director) and would find himself with sole responsibility for the cars operations and as before, Harold Musgrove and John Egan would report to him. The Light Medium Cars division and Jaguar were both turned into autonomous, fully-rounded organisations complete with their own independent sales and marketing departments – it was at this time Austin Rover were formed. If this management structure seemed needlessly complex, this was evidently so to observers and industry-watchers, who found the entire set-up pretty unworkable, to say the least. What complicated matters even further, was that David Andrews with given equal status, to Horrocks, but his responsibility was to oversee the Bus and Trucks organisation.

The formation of Austin Rover marked the end of the process of reorganisation of BL’s divisions into separate units. The company was now split into autonomous, independent divisions – this process being epitomised by the independent spirit at Jaguar, following the appointment of John Egan in 1981.

The worry for the Unions (correct as events turned out) was that this process had been put in place in order to facilitate the easy privatisation of the company in a piecemeal fashion. Edwardes, however, put a different spin on things by stating that this separation was to isolate the viable parts of the company, should one of the unprofitable parts need closing down – which was still a very real fear at among BL managers. It would not take long for this painstaking process to bear fruit, with Jaguar being the first and most public component of BL to be floated on the Stock Exchange in 1984. However, at this time, there were no parts of BL that looked remotely saleable – but that would all change within the period of four years.

In his last press conference as Chairman of BL, Edwardes had been asked whether there was anything from his five years in charge that he regretted – what did he consider to have been his biggest mistake? It was inevitable that it would be difficult to prise an answer to this question out of him, but surprisingly, he admitted that the company would have been in better shape financially by the time he left, had they pressed ahead with the launch of the (then-yet-to-be-released) Maestro and Montego rather than the Metro.

It was a tough choice, but the BL board ‘bit the bullet’ and chose to re-evaluate the ADO88 programme and heavily facelift it to become the Metro. This course of action was chosen because the development programme of the smaller car was far more advanced than the ADO99. Edwardes then qualified this further by saying, ‘If there was a decision that I wish we could have made another way it was that one.’ However, he also said that had BL thrown their development resources entirely behind the LC10, the company might not have survived 1980 without an entirely new product. LC10 was originally scheduled for a launch in 1981 – and with the Conservative government baying for blood, they may have been tempted to pull the plug.

Whichever direction the Edwardes plan would have gone – Metro or Maestro first – it was going to have pitfalls because of the limited development resources the company possessed at the time.

However, Sir Michael Edwardes had made some mistakes along the way during his grand rationalisation plan and these became ever more evident near the end of his tenure at BL. In 1978 when he first got his teeth into labour relations, the majority of BL’s work force welcomed their tough new Chairman with open arms because they knew that although there would be some painful losses, the feeling was that unlike previous management, he would have the wherewithal to finally get on terms with the all-powerful Shop Stewards. Edwardes did just this but the protracted series of factory closures did take their toll on the employee-employer relationship.

Sir Michael had possibly scored a home goal the previous November, when before the employees had a chance to vote on the proposed new pay award, he sent out a letter to the company’s employees threatening to sack anyone that went out on strike. Such an industrial faux pas was not what the Government expected from the chairman of a company so lodged in the public eye – and after the outpouring of public grief upon the closure of MG at Abingdon, it was one public relations disaster too many. The end result was the Government wanted him to go – and Edwardes himself was very aware of the fact.

The pay dispute of 1981 was certainly a significant moment in BL history and one where had the work force not eventually accepted unconditionally the 3.8 per cent pay offer on the table, the results of any prolonged strike may have been too traumatic to contemplate. As it was, there was sporadic industrial unrest – and the Government were becoming increasingly intent on ridding themselves of BL – as it was, had the workers not seen sense and returned to work when they did, BL could have at best, lost its next wave of inward investment (which had not yet been committed) and at worse, could have been dismantled and sold, or closed. It was that bad!

However, it never came to that, because a period of industrial calm was to follow this pay award and the future model plans could be evaluated and planned in greater detail. The Maestro and Montego were nearing production, so it was the replacement for the Rover SD1 that now occupied the minds of the planners. One thing was for sure, under the new management, Honda was to play a more significant role than first anticipated when the Triumph Acclaim hit the market in October 1981.

The British Trojan horse, the Anglo-Japanese Triumph 

As early as autumn 1981, discussions with Honda centred on the replacement for the Acclaim because this model was tied into a Honda model life cycle of five years, somewhat shorter than the norm at BL, and a deal needed to be struck quite quickly. Because the Honda derived Triumph Acclaim would form a significant part of the 1983/84 Corporate Plan, it was evident that if Honda were looking to replace their own Ballade model in early 1984, BL would have to bite the bullet and follow suit, by continuing the deal and carrying on marketing their own version of the Honda Ballade.

So with the Ballade plan settled, Austin Rover then agreed terms with Honda on a collaborative project to replace the SD1, both companies gaining something vital from this pooling of resources: Honda would be able to upwardly expand their range and Rover would benefit from tapping into Honda’s undoubted technical expertise. The project was agreed in November 1981 and was called the ‘XX’ (Honda’s version was called the ‘HX’ so as to emphasize the close links between the two cars. Harold Musgrove stated in an interview with CAR Magazine in 1985 that working with Honda increased his respect for the Japanese.

‘They take longer to make a decision than we do, but once they’ve made it, they move with incredible speed. The Japanese are very, very clever – but they are not unbeatable’. The spirit of competition was still very much alive at Austin Rover’s HQ at Canley and would figure substantially in the development of the XX.

Trouble was brewing, though. Continental rivals expressed concerns that the XX would give the Japanese companies a back door into European markets that had so far erected trade barriers against the Japanese. The Italians and the French in particular had agreements similar to that in the UK where the amount of Japanese cars imported into these countries was subject to a pre-agreement on numbers.

In Italy, this took the shape of a pre-EEC treaty, which limited the Japanese to 2000 sales, whereas the French, like the UK, did not have anything so formal, merely a ‘gentlemen’s agreement’ which ensured the Japanese would gain no more than 3.0 per cent of the market. This whole system, though, was being thrown into confusion by the BL-Honda deal – the pan European Status Quo was about to be shaken in a big way. One such critic at the time was the President of Government-owned Renault, Bernard Hanon, who at the 1983 Geneva Motor show stated, ‘European manufacturers should not become ‘Trojan Horses’ to allow the Japanese into Europe’.

He went further than this because he felt that unlike the Acclaim, which was very obviously a Japanese car to its core, the Austin Rover styled XX would be something else entirely. The problem also lay with ‘local content’ because the outwardly British car would contain much hardware sourced from outside the (as it was then known) EEC. Hanon stated, ‘If the local content is less than 75 to 80 per cent, those cars will be Japanese and should be treated as such.’

Renault criticism of BL went further and one can only assume that there was more to this carping than simply an issue of nationalism, as BL were a company that Renault had serious ambitions of collaborating with in the past. Pierre Tiberghein, the company’s car division boss stated that, ‘We have not made a fuss about the Triumph Acclaim, but that would not be the case with the XX’.

His concerns lay with the fact that as the Acclaim was built under licence from Honda, it was in fact 65 per cent Japanese – and therefore a Japanese car. Sir Michael Edwardes had stoutly defended the case of the Acclaim by stating that the company had safeguarded jobs at Cowley and the British component industry, citing figures by BL that claimed that the car was more than 70 per cent British. This figure came about by measuring the ex-factory value, allowing for overheads and even manufacturing profit to be taken into account.

Harold Musgrove was acutely aware of political opinion and when he negotiated the XX agreement with Honda, he set his team a target of 90 per cent load content – but accepted that due to the fact that Honda were defining many parameters of the joint venture, 80 per cent would be acceptable as a lower limit figure. British component manufacturers were, however, rather sceptical because of the fact that the 2.5-litre version of the car would use a Honda V6 engine and gearbox.

The engine was supplied by Honda, not built in the UK – and the gearbox and much of the ancillary componentry would also be sourced from Japan, so immediately with this car, there was little doubt that there was more than 20 per cent ‘non-local’ content. By this time, it was evident that ‘local content’ referred not to British, but EEC-sourced parts and, because of this, Austin Rover would have to approach the European commission in order to ascertain just how European the entire XX would actually end up being.

Revolution in design

After differences of opinion, Harold Musgrove decided that enough was enough with regards to the design team at Austin Rover. Having literally sweated blood during the design-to-production process of the LC8 during 1978 and 1979, the Austin Rover chairman decided that David Bache was not pulling his weight during the LM10 and LM11 programmes. It was not so much the neat and tidy LM10 that caused the problem (even though, during its gestation, had not changed in external appearance since 1976), but it was the LM11.

The problem was that in trying to imbibe the identity of a larger car into the saloon design, the car (which was the work of two different designers) simply was not attractive enough. David Bache, as Director of design was responsible for the overall look of the car – and when he presented the board with his latest idea on the car’s styling (the rear ‘opera’ windows) the mercurial Musgrove blew a fuse. The LM11 was ugly enough already – and this latest addition simply tipped the balance: Bache had blundered big time with this car and in the eyes of his boss, he lacked commitment to the programme – Musgrove fired him on the spot.

This treatment was scant reward for the man that had penned the Range Rover and the Rover SD1 – probably the company’s two finest cars of the ‘1970s, but Musgrove was adamant; Bache had to go and whether the decision was justified or not, it happened – and now Austin Rover were without a Director of Design.

Thankfully, this decision was rectified quickly, when the company poached Roy Axe from Chrysler (UK), just at the point where he was about to be transferred to work for the parent company in the USA for a second time, after successful work on the Voyager model. Axe was not that keen on the idea of moving back to the USA and when Harold Musgrove heard about this through the grapevine, he was immediately on the telephone to the disaffected Chrysler designer. Roy Axe himself put it in these terms; ‘I had been approached by BL during the previous year about joining the company but had not felt this was a move I wanted to jump at.

‘At Chrysler, where I was Director of Automotive Design, I had been through the worst of the upheavals and working for Lee Iaccoca, the future looked rosier than for some considerable time. During a vacation in UK in 1981, however, I did agree to meet with Harold Musgrove to discuss the matter. I was not expecting to be impressed but I was. Harold was a man on a mission, which was to put BL back into the international automotive business and he felt he knew what was needed to do that.

‘I have had a career setting up styling operations and handing over the results to others and, in fact, I had gone over to Detroit on just such an assignment there to re-establish the interior design studios. This was another challenge of the same kind and it seemed to be my greatest one yet. A great understatement! Harold explained to me in quite a long conversation that he felt that Styling was his primary problem. He felt that the manufacturing operations at the company were capable of anything given a good style, well engineered. CAD/CAM was very much on the horizon and a colleague from my previous life at Chrysler Europe was already in place as the director of Engineering. After more talks, a deal was stuck and I agreed to revitalise the Styling operations at the company.

‘The occupant of the position at the time was David Bache who I knew but it had been explained that he would be leaving and obviously relationships there were strained and it was a no-no to try to talk to David. I knew that the situation was bad and that radical changes would be required quickly but I trusted my opinion of Harold Musgrove as a man of his word when he said I could totally rely on his backing to support what needed to be done including the establishment of a new studio at the Canley location in Coventry.

‘I knew that things were likely to be basic at the company as regards working facilities but I was not prepared for how basic it was. On arrival I was shown to my office, introduced to my new secretary and to two old colleagues from earlier days at Chrysler Europe. These were Rex Fleming, who had been someone I had worked with since my Rootes days and Gordon Sked who I had hired at Chrysler but who had moved on to Leyland some time earlier. These two were to people who gave me my introduction to the BL styling operation. They were very supportive and were to prove to be reliable and loyal throughout. What a shock! The studio at Canley was a long narrow room in the old Triumph office block. Equipment was rudimentary and the facility was without a showroom.

‘The showroom, in fact, was in the second facility at Longbridge in a place called the Elephant House. This was a circular building with space for designers and modellers on the perimeter and a central area that could be used for display and presentations. It was all in poor shape and quite awful. I was stunned and really wondered what I had got myself into! I began to wonder what might happen if Harold did not prove to be a man of his word, but this fear proved groundless. In fact the planning of the new facilities was put into effect almost immediately with special urgency required as the partnership with Honda was reaching a stage where a joint development programme with Hondas design department was just about to begin and the situation looked very difficult in light of the inadequate facilities at the company. In the event, as much work as could be incorporated at Canley was done there including most of the design work on the Rover/Honda project, while Longbridge was used to service the other already existing projects.

‘The new facility was planned and the cost thought to be excessive. I did remind Harold of his commitment to me and he honoured it as with everything else he promised. There was also strong support from the Finance Director, which is always a pleasant surprise! There followed over a year of very high-level activity. A new studio complex was designed adjacent to and incorporating the smaller original Canley facility. The new premises were inside the existing Triumph assembly building, which reduced costs. The studios were of good proportion and included storage and display facilities. At the same time the relationship between Honda Design and our operation was in full swing with the early work of the Rover 800 project being done in the middle of this mess! In addition to all this, the current products required attention.

‘An excellent relationship between Mr Wakura and myself the Honda design chief developed in these early days leading to a friendship lasting right through to today. As a result the atmosphere between the two design groups was positive and worked well throughout the period we worked together.’

The Maestro and Montego fail to impress

Axe arrived on the scene too late to have any influence on the LM11 design, but he had come in at an auspicious time: right at the start of the XX programme – a top-of-the-range car, and one that if styled right, would act as a mobile showcase for this man’s abilities for years to come.

As it was, he was unimpressed, to say the least, with the LM10 and LM11, but horrified at the state of the design offices – which had effectively remained unchanged since the 1970s. There were still three design studios, an office remained operating at Solihull, there were the remains of one at Canley, and finally, the Longbridge ‘Elephant House’, which remained as it was since being set-up in favour of the Pressed Steel Office in Cowley way back in 1970. Axe had been given carte blanche by Harold Musgrove to not only steer the design of future Austin Rover models in a more favourable direction, but also update the company’s design facilities.

‘I found things very difficult. Premises, equipment and everything was in a very, very poor state. But Harold was as good as his word providing the money to build our new design centre, a building within a building. It made a very interesting project. Cost us about £5.2m, if I remember’, Axe stated about the situation. Not only were the new Canley design offices (called the ‘Roy Axe‘ studio) a vast improvement over what came before, but Axe managed to encourage a raft of new designers into the company – something of a coup, but also indicative of the improving image that the company outwardly possessed at the time.

Meanwhile, at the top of the company hierarchy, Sir Austin Bide was keeping a low profile, ensuring that the majority of the company’s car news was being fielded by the ever hard-working Ray Horrocks. However on reporting the company’s performance to the Commons Select committee in 1983, he stated in reference to the car division’s improving industrial relations, ‘I believe that commercial realism among BL’s workforce and their representatives will prevail’. BL’s management continued to insist that the company would reach a break-even point in their trading profits by the time that the Maestro was on stream at Cowley.

The finances would not actually get near to this point until 1987 because the company would continue to suffer at the hands of he ongoing price war being waged between Ford and Vauxhall, who were both in the fortunate position of being able to ‘buy’ their market share. Sir Austin also informed the Select Committee that in his view, a part of the company would be in such good shape by the end of 1984 that it would be in the position to be sold off. He was, of course, referring to Jaguar, which as a company had been undergoing a quite miraculous transformation under the leadership of John Egan – it was especially strong performances in the USA that was enabling the luxury car division to turn in some exceptional performances.

Portions of the company were becoming saleable propositions, but the reality was that Austin Rover was not one of them – and what BL needed more than anything else at the time was a period of political and industrial peace. If nothing more, this was needed so that the plans of the company could be given chance to be followed through without undue distraction. If the company were not given this opportunity and market failure followed then there were no more chances to rationalise the company further by making cuts – as these had already been finished by Sir Michael Edwardes. The situation was that Sir Michael had trimmed all he fat from the organization and there would nothing left to close without seriously harming the company’s future prospects.

The company’s future now lay in the hands of the Maestro and Montego.

In March 1983, the LM10 finally made its debut to the public and press and was greeted with mixed reactions. The problem, of course was that the new car, although a huge improvement over the Maxi and Allegro, it was obviously a product of the 1970s school of design, with its folded paper styling – and as a result, the car did not prove to be an instant sales hit. In its first full year of production, the Maestro racked up 101,000 units, but from that point onwards, the production levels followed a depressing year-on-year downward spiral. The Montego that followed onto the market the following April also mirrored this trend; its best year being its first full year of production, 1985, with 95,000 being built.

The end of Triumph

A matter of weeks after the Montego reached the market; the second BL-Honda collaborative model hit the market, to replace the Triumph Acclaim. In a change in marketing strategy, the 1.3-litre saloon was to be marketed as a Rover instead of a Triumph – bringing to a close the famous Coventry marque and producing the smallest Rover since the 10HP, some thirty-six years previous.

Like the Triumph that preceded it, the Rover 213 was basically a Honda Ballade with minor cosmetic alterations, centring mainly on the headlamp/grille arrangement and interior trim. Unlike with its predecessor, Austin Rover announced at the time of the launch of the Rover 200, that it would be the first of a range of cars – and they would not be uniquely Honda engined. By the time of the launch of the Rover 200, the existence of the XX was well known and the expectation by the press was the smaller car would be developed in a much more comprehensive way – the new Rover was very much a model in its own right and it would prove to be central to Austin Rover’s plans for the mid-to-late 1980s.

Because of the public’s relative apathy when faced with the Montego and Maestro, the optimism that BL managers spoke of in 1982 and 1983 was replaced by a more pragmatic attitude by 1985. In 1983, Austin Rover managers spoke in terms of regaining and maintaining 20 per cent of the UK market, but the reality was somewhat different – when the year end figures came in early in 1984, it showed that the company had managed to achieve 18.57 per cent of the market – bad news considering that the Metro was fully up-to-speed a Longbridge and the Maestro had been launched to replace the dead-in-the-water Allegro.

It was understandable that the forthright Harold Musgrove would try very hard to gag his executives, but it was still possible, even in 1984, to hear of Austin Rover high-ups speaking in terms of 20 per cent being an achievable target. However, at the start of 1985, the SMMT results would indicate a further drop in market share for 1984 – 17.84 per cent.

These were not the results that the Government were expecting to see after the huge injection of cash into BL during 1982 and when the company’s corporate plan was revealed to government; it resulted in a further falling out between both parties. In 1984, the BL Board had their plans for the privatisation of Jaguar thrown back in their face – because they wanted to keep a 20 per cent stake in the company – and in 1985, it was the question of the company’s continued funding by the Government. Austin Rover had requested a further £1.5 billion injection of cash from the Government, but they had suggested that the car company should re-consider this amount by reducing it by at least £200m – otherwise it was an unrealistic request.

Margaret Thatcher had viewed the company with a measure of distaste since sweeping into power in 1979, but it was not until she was well into her second term that she began to impose her will on the company’s spending plans. Sir Michael Edwardes was one of a very select band of people that bested her in matters of finance and commerce, but it was over the initial £990m spending plan that he had managed to persuade Mrs. T that it was essential to release the further money.

By 1985, however, the situation had changed for the worse because BL had not been making acceptable progress towards the promised profitability. In 1984, the prediction had been made and laid out to the government, that the company would be making strides towards breaking-even – in fact, they actually made a taxable loss of £73.3m, which to make matters worse, was an increase over the 1983 figure of £67.1m. The board stated that, ‘a major contributing factor was the loss of production in 1984 in Austin Rover of 60,000 cars and vans due to damaging industrial disputes at Longbridge and Cowley’.

Significantly, thanks to some intelligent ‘massaging’ of the books, the BL division of Unipart reported a profit of £14m. Importantly, any potential loss-making manufacturing companies previously within Unipart were now transferred to the Austin Rover division: Unipart was being readied for privatisation.

The position of the company would have improved without this industrial blight, which did affect production of the Maestro and Montego at the start of their lives, but this was not the only cause of the disappointing figures. At the same time, the company were continuing to suffer badly at the hands of their larger rivals, who were looking more secure in the price war that was continuing in the UK and Europe. The company’s output was running at 423,000 per year at the time and now some serious questions were being raised over the plans for the future. The company’s capacity for output was still someway short of being acceptable for an independent manufacturer, but if this made the company desirable to a predatory rival, this can hardly have been bad news for the Government, who were becoming increasingly desperate to sell off the Austin Rover Group.

Goodbye to growth plans for BL

The other question that the politicians were now asking – and which was a totally relevant one – was how do the company expand their output from the 435,000 per year break even point to the desired 600,000 per year, which would bring the company a healthy profit? The answer was of course, that they could not – European sales potentially could improve once the supply of Maestros and Montegos was uninterrupted and there were some ambitious targets for the XX to meet in the USA, but the sums did not add up.

The request from the Government to chop £250m from their spending plans, could have been met quite easily had Austin Rover cancelled development of their K-Series engine, but Harold Musgrove quite correctly insisted that the radical small engine should remain on course – and he fought hard to ensure that this happened. His reasoning for this was quite easy to see because there was no way that Austin Rover would be seen as an important car producer and retain their ‘Corporate Identity’, if in the future, their engine range comprised entirely of Honda units.

This Honda option must have appeared to be an agreeable economy for some within Austin Rover and others in government circles, but Musgrove was absolutely trenchant. ‘It’s imperative that we don’t rely on another maker to do something for us, and then lose the ability to make that part.’ It was for this reason that the Metro did not receive a Honda engine – even as a stopgap – because the intention was for the car to be replaced with a version that used the K-Series engine. Also, the intended launch date for the Metro replacement and its K-Series engine was 1987, but the programme was dropped in favour of the Rover 200-replacing car, known internally as the ‘YY’ which was due for launch in 1989.

However, due to several announcements in 1986, events took a significant turn for BL.

Sell-offs to Ford and GM mooted, but never happened

David Andrews, the opposite number to Ray Horrocks in the Trucks and Buses division – which significantly also included Land Rover – had found himself embroiled in government sponsored talks with General Motors with regards to a takeover of the entire division.

GM had genuine reason for interest in this part of BL because for some years, Bedford Trucks had been subject to a significant drop-off in sales – and the purchase of Leyland Trucks would provide a useful fillip for the company. New Leyland trucks were in the offing but because BL did not have the financial muscle, marketing this new range of HGVs would be an area where GM could only add to the deal. The problem of course was that there would be inevitable losses in jobs at either the Leyland or the Bedford factory.

Of course, in reality, this was only a side issue. The real reason for the talks was the purchase of Land Rover, perhaps the jewel in the crown that comprised of BL’s portfolio of marques – and GM had big plans for Land Rover – and they were prepared to pay handsomely for it. Talks were going well between both parties and had reached the point where a price of £275m had been agreed for the Trucks and Buses division, when the Government made a most sudden and uncharacteristic U-Turn.

GM had been ready to sign. On the day the deal was to be finalised, talks between GM Executives and Trade and Industry Secretary, Paul Channon broke for lunch – and also to give the chance for the contract writers to undertake some last minute re-typing. The Trade and Industry secretary took this opportunity to call Thatcher at Number 10 and inform her that the sale was about to go ahead.

Unfortunately, after the Westland affair, which had not only cost her two of her most senior Ministers, but also untold amounts of bad publicity, this was not good news for Mrs. T. The Prime Minister had resultantly been suffering a torrent of attacks from her own MPs and the Media – calling for her blood following what appeared to be a whole scale sell-out of this country’s finest companies to the Americans. With this very much on her mind, Thatcher instructed Channon that Land Rover must not be included in the deal at all costs.

When the meeting re-assembled, Channon told GM Executives this news. Understandably, they were distraught and, rapidly, the talks broke up – the deal would make no sense to GM without Land Rover.

BL’s talks with the Americans did not end there, however.

The fact that Margaret Thatcher’s Government had lost patience with Austin Rover’s inability to turn in a profit led to talks between an unwilling Ray Horrocks and Sam Toy of Ford UK with a view to the American owned giant taking control of the company. Ford’s motives for the takeover were not purely down to market share in the UK and Europe, but this played a major part in the decision making process. In terms of product, the Mini aside, the ranges offered by the two companies overlapped at just about all levels: the Metro and Fiesta, the Maestro and Escort, the Montego and Sierra and the Rover SD1 and Granada.

There were appealing reasons for taking on Austin Rover, not least their M16 engine, soon to appear in the upcoming Rover 800 and, further down the line, the highly advanced K-Series engine. There was also the strength of the brands – Rover and Mini were still highly regarded prizes and Ford had harboured plans for MG and Triumph, especially – and finally, there was the potential for an extra 500,000 units per year in UK manufacturing capacity that Longbridge and Cowley amounted to, even though there were dark rumblings in the industry over their concerns about over supply in the future.

In terms of market share, Ford held 27 per cent of the UK market and 11.9 per cent of the European market in 1985, and added to the 17.9 and 3 per cent shares of Austin Rover, that would put the Ford/Austin-Rover company comfortably ahead of the then largest player on the European market, the Volkswagen-Audi Group.

Following immediately after his traumatic meeting with GM, Channon was scheduled to address the Commons regarding the failure of the GM-Land Rover talks, but was also told that news of the secret Ford/Austin-Rover talks had been made public.

In fact, news of the Ford/Austin-Rover talks did not become public knowledge for several days, but when it did, Channon was ready. Because news of the Ford/Austin-Rover talks had been leaked to the Labour party, Channon was forced to announce the news of negotiations between the two companies on 5 February 1986. Unfortunately, he made his announcement too soon. In the House of Commons, he reiterated the Government’s desire to return Austin Rover to the private sector by saying, ‘We have to ask ourselves how much longer we can support the company with taxpayers’ money, whether we can continue to have these liabilities indefinitely, and whether there are not other options that should be seriously considered.’

MPs in the Midlands were outraged by these plans and the idea of selling Austin Rover to the Americans was simply not palatable following the debacle of the GM talks, let alone the controversy that surrounded the sale of Westland.

The following day, the Ford GB Chairman had called Channon to confirm that the deal was still on – the fact that the rug had been pulled from under GM was enough to make him think that the same could happen to Ford. The Minister reassured him that the deal was still very much on – but within 24 hours of Channon’s original statement to the House, (and only hours after Toy’s reassurances from Paul Channon) the Government bowed to media and political pressure and was yet again forced into an uncharacteristic U-turn (the Lady was for turning, after all).

This was as a result of the realisation that they had misread the Political climate in a most profound way. The Government had also realised that the uncertainty created by the original statement would undermine the company at all levels – be it management, employees, product or the suppliers. The deal was off. But the damage had already been done: Ford had been given full access to ARG data for due diligence, as part of the lead-up to the buy-out – they gained a huge amount of commercially valuable information that helped them considerably during the rest of the 1980s.

Austin Rover were yet to launch the Rover 800 and yet, through media speculation and the undoubted impressiveness of the Honda version, previewed in December 1985, the assumption was that this was going to be a highly effective car. The fact that Harold Musgrove had done his best to talk this car up as being a ‘World-beater’, must have helped MPs pressure the Government enough for them to re-think their plans. No-one in a position of power was naïve enough to think that Austin Rover were strong enough to survive on their own, but most elements of the media were suggesting that the way forward for the company was to form stronger links with Honda – to form an alliance with the Japanese company.

Hindsight would suggest that Ford could have been an understanding owner given their subsequent experience in running Jaguar, Aston Martin and Land Rover, but the prevailing climate at the time was for independence – and the feeling within the company was that as Ford and ARG were bitter rivals, and as such, would have contracted the company as quickly as was politically prudent. Hal Miller MP (the Joint Chairman of the All-Party Motor Industry Group) summed up the situation perfectly, ‘collaborative ventures, yes – they’re commercial commonsense and necessary in today’s world, but control must stay here’.

Of course, there were no winners in this most public debate over the future of Austin Rover – if anything there was only losers, the main one being Austin Rover itself. Ray Horrocks stated that morale at Austin Rover was the lowest that he could recall in the eight years that he was a manager within the company – and worse and somewhat more profound than this was the effect it had on the company’s market share: during February, when the public debate was at its height, it cost them between two and three per cent of the market – or in real terms, some 20,000 sales.

The end result of these events were that Thatcher suffered a further humiliating blow to her leadership, this time because of her bad timing – and misjudging Political opinion. This now meant that twice now, matters BL had dealt her a bloody nose and the end result would mean the departure of Sir Austin Bide – and, ultimately, both Harold Musgrove and Ray Horrocks.

The old guard is ousted, as Graham Day sweeps in

Graham Day was chosen by Margaret Thatcher to run BL following the collapse of Ford and GM takeover talks. He would prove to be an uncompromising leader, who would finally lead the company back into the private sector. His appointment also led to the death of the Austin name.
Graham Day was chosen by Margaret Thatcher to run BL following the collapse of Ford and GM takeover talks. He would prove to be an uncompromising leader, who would finally lead the company back into the private sector. His appointment also led to the death of the Austin name.

Within weeks, Margaret Thatcher acted decisively in re-creating the former Sir Michael Edwardes role of Chairman and Chief Executive – and the man that she personally chose to fill it was none other than Graham Day, formerly the Chairman of British Shipbuilders. The 52-year old and athletically built Canadian was chosen by Thatcher to signify the Government’s growing unrest with the way things were going in Austin Rover – and if nothing else, it signified in crystal clear terms that the Prime Minister wanted BL privatised as quickly as humanly possible.

Like it was back in 1977, a new broom swept its way through the company and within weeks, both BL Directors, Roy Horrocks and David Andrews announced that they had decided to resign, leaving Graham Day in total control of the entire operation. Horrocks was an unfortunate casualty of the appointment of Graham Day, because as the then current Chief Executive of BL, he had effectively been put out of a job.

Horrocks himself was pragmatic enough to realise that he plan to take the full-time Chairmanship of BL now lay in tatters and more than anything else, it was as a result of fact that he very publicly led the internal BL opposition to the talks with Ford – something that Mrs. Thatcher herself was very keen on. This led to Horrocks being ‘disciplined’ by Paul Channon and the appointment of Graham Day to replace Sir Austin Bide at the head of BL.

In his final speech to the House of Commons select committee, Horrocks used the opportunity to air his views on the situation, ‘I have been assured from all quarters that the recent appointment was absolutely no reflection on my performance as a manager. So I conclude that other factors or influences are at work and all I can say is that I have stood up for what I believed to be the best interests of the business and this has brought me into conflict with the major shareholder (the Government).

‘….and any manager who does that knows the risk he is taking’

He did not leave it at that. Horrocks maintained that the current Government was crucifying BL for short-term political gain, ‘Currently, we face a political not commercial problem and the politics of ownership appear to be outweighing responsibilities of ownership to the detriment of the business and a large part of the UK motor industry.’ Horrocks was not against privatisation per se, but he made it very clear that in his opinion, the methods being used by the Government were all wrong.

Day made it very clear that he would be taking a close and personal interest in the promotion of Austin Rover cars and see what he and his marketing gurus could come up with in order to wring every last drop of market share for the company – this would subsequently prove to be something that the new organisation was rather adept at. He set up operations for the upper management of the Company in the City of London and the rest of management’s decision making processes would conducted in Uxbridge, ‘it is very sensible to have certain things conducted from Uxbridge – it is less expensive. But the reality is that a whole range of things, like the Government and the banks, are in London. The third parties with whom one has to deal are not necessarily thronging around Uxbridge.’

By February 1987, the slimmed-down Rover Group looked like this - Jaguar and Unipart gone... the name Austin would survive only a little longer.
By February 1987, the slimmed-down Rover Group looked like this – Jaguar and Unipart gone… the name Austin would survive only a little longer.

It was at this time that the BL name was finally laid to rest. After Edwardes contracted the name British Leyland to read, ‘BL’ in 1977, the company’s events seemed to continue on their traumatic way. When Day renamed the entire organisation, ‘The Rover Group’, the Leyland name and any remaining component of it was finally buried for good. Edwardes had good reason for naming the organisation BL: the intention was for this company to act merely as a holding company for the various component companies contained within it.

The trouble with this plan though, was that the seemingly anonymous holding company was constantly in the public eye – and therefore probably more well known than the companies it held. BL was also responsible for the relationship between Government and the small band of private shareholders who remain on the register, so as to keep the BL Stock Exchange quotation alive – even after Edwardes renamed the company in 1978, pundits and the public alike continued to call the company ‘British Leyland’ or ‘Leyland’ – few ever used the new title – and what that meant was that Edwardes was always going to be up against the negative connotations that came as baggage with the name, ‘Leyland’.

Shortly after Day’s appointment, the Rover 800 was finally launched to an expectant public. Unlike the previous new cars, the Maestro and Montego, the new big Rover was the product entirely created alongside Honda – and which was styled pretty much entirely by the new Post-Bache/Mann/Longbridge generation of Austin Rover designers. The car was compromised by its need to sit on the same floorpan and underpinnings as the Honda Legend – and by the fact that the styling was such that it needed to continue the ‘look’ pioneered by the Rover SD1, but on the whole it was met with enthusiasm from the UK and European press.

The public seemed to like the car too, but like the SD1 before it in 1976, the new Rover was plagued by supply problems from the start. The Rover 800 was launched in July 1986, but the emphasis was placed on the Honda V6 powered 825 model because supplies of the new M16 engine were not sufficient to meet expected demand for the 2.0-litre models. From this hesitant start, however, sales of the new Rover picked up well and it soon became a well-regarded member of the ‘executive set’, more often than not outselling the Ford Granada – a car long since regarded as a perennial favourite in the UK.

The company that Day had inherited was certainly in better shape than that same company when Sir Michael Edwardes took the reins back in 1977: now that the Rover 800 was launched, Austin Rover had renewed its entire model range in only six years (Mini excluded). In reality, the Austin Rover situation, although highly political, was somewhat less desperate than that of British Shipbuilders when Day took it over – and he managed to turn that around in readiness for privatisation.

Readying for privatisation

Day’s plan of attack was, in reality, the only one left to take. As discussed before, it would be impossible to further rationalise the company – there was really no fat left to trim from the company. The company was seemingly stuck at a production level of 500,000 per year, so Day decided that the survival of Austin Rover lay in taking the company further upmarket – where the profits were higher. Day insisted that the Government had given him no directives when he joined BL, only to develop a corporate plan that would ultimately lead the company into privatisation.

He also knew that some parts of the Rover Group could be offloaded rather quicker than others, ‘I am concerned that any deals must make commercial sense. Some units clearly can stand alone, others cannot.’ The first fruits of this statement would soon follow. In an opposite sentiment to that of Sir Michael Edwardes, Day stated in response to the old ‘Unsaleable rump’ argument, ‘Does it make sense to cross-subsidise something that might be a perpetual loss-maker?’

Deep down, one senses that Edwardes wanted to make a success of BL and all its component forms, whereas Day tended to look at things in a more dispassionate way. These two approaches may have been very different, but both achieved results in their own way.

Day believed that the new Rover 800 would play an important role in this new chapter of the company’s history, ‘If that model is well-received through 1987 and 1988, it will take Austin Rover down a more encouraging path. Two or three years back, or even longer, there was, I believe, customer dissatisfaction with the quality and reliability of Austin Rover’s cars. It takes a long time to get people back to a brand with which they once had difficulty – that is true for toothpaste, let alone high price cars. If the Rover 800 is as successful as we think it will be – that message will get out to the UK market. It will have a halo effect. The public will feel the other cars in the range could be just as good.’

The departure of the hard working but unloved Harold Musgrove followed within weeks of the launch of the Rover 800. It was probably an appropriate time for him to go, anyway – one could not see him getting on with Graham Day – and as he did play a big role in the development of the Metro, Maestro, Montego and Rover 800 it seems in hindsight that he chose a point to call it a day where a chapter ended in the company’s history.

Musgrove was truly a product of a past era and this was never more apparent than at the press conference to mark the announcement of the Rover 800 when he was asked why it did not come with ABS as standard across the range, like its main rival the Ford Granada. He said: ‘We didn’t fit ABS as standard on the 800 because it isn’t as necessary with transverse engine (sic) front-wheel-drive cars as it is with rear-wheel drive.’

There is no doubt that Musgrove played a part in the development of this car but, at the end of the day, this attitude of, ‘we know best’ certainly would not wash in the new regime, where Day admitted that he would fit day-glo paint to his cars, if that was what his customers demanded. Day also felt that Musgrove had misled him over the company’s newest product – and that did no help the situation one bit: an insider put it like this, ‘The key cause of falling out was that Day felt he had been misled by ARG senior managers as to the readiness for launch of the 800. It should ideally have had a few more months of problem-sorting, but then again, an even later launch would have caused other kinds of problems – a no-win situation.’

The year of 1986 truly had been an annus horribilis in the company’s history – and as the year drew to a close, the uncertainty over the Rover Group in the minds of the buying public was confirmed when their UK market share fell to an all-time low of 15.9 per cent. This follows on from the more or less consistent 18 per cent that BL were achieving following the launch of the Metro in 1980, but if it looked like a disastrous drop off in sales, Graham Day was again, pragmatic about the situation. Whenever the company was in the news, market share would inevitably drop – Day wanted to put a stop to this situation, by attempting to run the company in a level-headed way. The intention was now very much to stay out of the news.

Within months of his appointment, he drew up a realistic business plan that centred on the ‘Roverisation’ of the entire range – and that in the future, all new Rover (or MG) badged cars would be priced at a premium over their mass-market rivals. This marked a significant about turn in the company’s strategy and certainly made a change from the previous management’s insistence that they were chasing a 20 per cent share of the UK market.

Day stated the opposite, by saying that it was not market share that mattered, so much a profit – indeed, Day was not concerned in the slightest at the contraction of the company’s market share. He said that he would be quite happy with a ten per cent slice of the UK market, as long as he could choose what ten per cent. The reasons for this downfall were down the fact that Austin Rover made a conscious decision to stop competing with Ford and GM by buying into their market share (this practice had been widespread since the early ‘1980s).

Certainly, the strategy of going upmarket looked risky in light of the fact that the Metro, Maestro and Montego could not comfortably wear a Rover badge – and that market research now showed that the Austin name carried all kinds of unfortunate connotations with the past – in the buyers’ minds. Also, the marketing of the brand needed to be given ‘more punch’ because the company was losing sales due to lack of product awareness in the most basic sense, in some cases. Day put this down to the engineers taking control of the company’s marketing – strange until one recalls that Austin Rover’s Chief Executive, Harold Musgrove, took a leading role in the development of the company’s cars since the Metro.

This position that Musgrove occupied himself in certainly was strange, as it is received wisdom that the Chairman should let his staff get on with the day to day development of any new product. Be that as it may, Day was quick to point out that the ‘Edwardes era’ as he liked to refer to the days before he arrived on the scene had produced new facilities, a modern range of cars and stable industrial relations. What it had done however was to, ‘ignore the fact that the company was selling consumer goods and needed to satisfy the consumer’.

The marketing side of Austin Rover occupied Day more than perhaps it should have done if the product had been promoted correctly. Speaking in CAR Magazine in 1987, he summed up the situation, thus, ‘I don’t believe we were presenting and positioning our products as they deserved to be. I wouldn’t say those that were doing the job then were negligent in that they didn’t do anything about the situation. But they were excessively driven by their heritage in engineering or manufacturing’.

Day wanted a clear and well-planned marketing strategy and this was something that he, through Austin Rover’s marketing department and advertising agency Dorlands, achieved remarkably quickly. The strategy was devised on the back of a hugely detailed market research programme (instigated by Director of Marketing, Kevin Morley on behalf of Harold Musgrove before he left) that surveyed the desires of the company’s present customers and potential buyers. The results made fascinating reading and because of this, the company focused laser-like on the areas where the company was seen as unjustifiably weak.

Day stated that the strategy of the previous management had simply produced confusion about the company’s products,

‘’Now we’re Motoring’, remember that? We got rid of it.’ – a campaign which, ironically, had been Dorlands’ idea!

‘So far the new strategy has been applied to three models – Rover 200, Mini and the Montego.’ Day claimed that the strategy delivered impressive results – the Mini especially so – certainly this awareness of the Mini resulted in the car remaining in production, when it was looking increasingly likely to suffer a quiet death at the hands of Harold Musgrove. Business reasoning went completely against the Mini as well, meaning that there should have been no rational reason for continuing its production.

One insider put Austin Rover’s dilemma in context: ‘It should be realised that there were lots of reasons why Engineers and Manufacturing people wanted to axe it – it was a 1950s design, lots of difficulties with modern legislation, a pig to manufacture – it was responsible for dragging down the productivity figures of Longbridge, and so on. Musgrove always took the view that it was taking volume away from Metro, too’.

However, the resultant renaissance of the car (especially in Japan!) led ultimately to the eventual re-appearance of the legendary Mini Cooper in 1990 – the rest is Mini history.

Not that Graham Day was solely responsible for this marketing renaissance – far from it, in fact. Much of the credit of this must be laid at the feet of ex-Ford marketing guru, Kevin Morley, who was a new recruit to the company, joining just weeks before the arrival of Day himself. Where Day was extremely clever was in his insistence on changing the emphasis in Austin Rover – to the point where Morley would have as much influence on the direction of the company as, say, the Director of Design, Roy Axe. Much of Rover’s new direction can be summed up in the statement by Morley that, ‘Seat of the pants decisions are dead. I could quote you examples of cars, which have researched badly, but somebody said, ‘let’s do it anyway’. They’ve bombed’.

The renaming of the company also served to heighten the brand, ‘I admit there was a danger of adding to the confusion’, when asked to his motives for doing this, ‘but Rover was the oldest name we had, and it applied directly to the products we make – Rover cars, Freight Rover, Land Rover, Range Rover.

I hoped it would not so much confuse as remind.’ This of course, left the Austin marque out in the cold – and the first decision made was to de-badge the Austin range so that the only identification on the Metro, Maestro and Montego was the model name – Austin was now effectively dead. Day added, ‘Our research indicates, particularly in the 17 to 34 age group, that people do not wish to drive an Austin.’ And that was it – the Austin name would be consigned to history by the new incumbent, just as the Riley, Wolseley and Morris names had been at previous changes of management.

Benefits of the new regime were soon felt – and although the company’s market share failed to improve, the profit situation did begin to. If there was a price to be paid, it was the Maestro and the Montego that began to fall by the wayside, to be replaced in the public’s affections by the more ‘exclusive’ Rover 200. Work continued on the next new Rover, the ‘YY’, which would be now known for a short period of time within Austin Rover as the AR8, before it became the R8 in 1987 – and like the Rover 800 before it, the new car was conceived as much more of a joint effort than the existing small Rover.

Unlike the existing car, which was all-but a re-badged Honda Ballade, the new car would be co-developed with Honda – and would be an entirely new design to them, too. The Rover-Honda deal was beginning to pay dividends for Honda too – who thanks to this joint venture, were having a new market opened up to them, and one that was right at the heart of European market, the mid-sized family hatchback market.

A shift in emphasis for Rover

Company planners ensured that the Rover version new hatchback would offer an advanced specification – and as a result, the car was planned from the outset to use the twin cam 16-valve version of the new K-Series engine. Production and development build up meant that the K-Series would initially only be offered in 1.1-Litre 8-valve (in the upcoming R6 project Metro replacement) and the 1.4-Litre 16 valve version.

There was further upward expansion potential in the new engine, but 1.6-Litre versions of the AR8 would initially be Honda-powered – not that this had proved to be even remotely off-putting to the company’s clientele. It was also an operational requirement and a stipulation of the Rover Honda collaborative deal that at least one model in the Rover range would be mechanically identical to its Honda counterpart – the idea being that there would be common ground on where to judge each others’ performance, a ‘datum point’, as it was referred to internally.

Now that a rational forward plan had been drawn-up for Rover, it was looking to be an increasingly tempting bet for takeover. It may have been a totally different company to Austin Rover, a mere two years previously, but in March 1988, a shock announcement was to the media that Rover was to gain a new owner – one that was from the most unlikely of sources: The aerospace industry.

In fact, the speed in which the deal between British Aerospace and Rover was constructed and then finalised was quite simply, astonishing. The whole arrangement must have been a welcome relief for the government, still smarting from the GM/Ford debacle, which was desperate to rid themselves of the car company in the most politically expedient way.

British Aerospace deal shocks and surprises

The announcement that British Aerospace (BAe) had intended to buy the Rover Group was made in a joint press conference chaired by Lord Young, with Graham Day and BAe chairman, Professor Sir Roland Smith briefing those attending with the finer details of the takeover. The cost to BAe for Rover would be £150m, but this bargain price was only part of the deal – the company’s bank debts, which amounted to some £400m would be written off and not only this, but the Government would throw in a further £547m into the deal, as working capital. Not bad, when you think that BL had swallowed a total of £2.6bn in taxpayer’s money between 1975 and 1988. These were the costs and benefits to BAe, but what guarantees did the Government demand?

In short, the Government initially made no stipulations to BAe that they should keep plants open, maintain a minimum workforce, guarantee R&D spending – or even continue to offer a full model range, in fact the only condition of the deal was that BAe were required to keep hold of Austin Rover for a minimum of five years.

This was certainly a sweet, if not irresistible deal for BAe, but how did it come about in the first place? Well, it seems that the idea came about because of a chance meeting between Day and Professor Smith at a cocktail party. One can imagine that there would have been a certain amount of encouragement from government representatives present, who for sure could see the benefits of these two parties getting together.

Negotiations were swiftly conducted and once the deal became public knowledge, Ford thought long and hard about re-entering negotiations for the Rover Group – and Volkswagen, too, seriously considered buying Rover. The Government made it quite clear that rival bidders would be unwelcome, even though a company like Ford or VW would certainly push up the price enough to scare off BAe, especially if they started bidding against each other. That is exactly what the government did not want – BAe were British, they were from an unconnected industry and this deal is what they did want, because it could be in no way seen as selling out to the opposition – or the Americans…

In the lead-up to the EC enquiry into the Rover sale, Professor Smith made the commitment to invest the sum of £1 billion into the Rover Group in the following five years. The offer was made at a House of Commons Trade and Industry Committee hearing that Professor Smith himself attended. He told the committee that, ‘we think Rover group is a good business and will be better as part of BAe’s portfolio. We’re not wishing to buy a business to destroy it or sell it, or cut it about.’

These were interesting words and hindsight reveals that Smith’s pronouncement was less than correct – they did not asset strip Rover as much as some people feared they would during the terms of their tenancy as Rover’s owners, but they did close two thirds of Cowley and closed Canley completely – and that rather flew in the face of Smith’s ‘…cut it about’ comment.

Would BAe sell Rover for profit after their five years were up? – now, that was a different matter.

There were questions raised about the finer points of the deal involving government intervention of a ‘nationalised’ industry – certainly the more than generous amount of working capital that BAe had been promised. Thankfully for BAe, when the European Commission reviewed the sale of Rover and the £800m handout given to BAe was realistically referred to as a, ‘state subsidy’.

Certainly the EC did impose a couple of conditions in order to make the company resemble a ‘normal’ commercial company; such as Rover were required to maintain £100m of its debts and use its own money to finance car stocks, instead of the government’s. Other than these ‘adjustments’, it was hardly likely that Brussels would veto the deal, but all the same, the book was finally closed on any uncertainty over Rover’s ownership when they finally did give the deal their blessing.

Professor Smith made it clear that he was unimpressed by what he saw as the overtly close monitoring of the deal by the EC – and as a result, he held off signing the agreed deal by some 24 hours. This may have looked like last minute posturing from the bluff BAe chairman, but he had also been genuinely wrong footed by the EC’s assertion that if the company ditched the Rover corporate plan, then all government aid could be clawed back. Smith also signalled that although the Government had no doubt aided his company in a huge way, he was going to run Rover as he saw fit and would not be dictated to in his dealing with Rover. This delay may have cost his company some goodwill from the powers-that-be, but it also showed his determination.

As a result of the EC agreement, on 13 July 1988, The Rover Group officially became a subsidiary of British Aerospace – and the book was now closed on an era of public ownership that had lasted thirteen traumatic and costly years.

Miraculously for Rover, from the announcement of the deal in March 1988, the company’s image and financial performance took an immediate and upward turn: Rover’s executives quickly began to talk of a ‘halo effect’ from BAe that engulfed the company. Not only this, but the evidence of Rover’s viability as a going concern were there for all to see; the 1987 financial figures published a fortnight after the initial announcement, showed that Rover managed to produce a £27.9m profit before tax.

If City analysts were sceptical about the deal, this profit – and the prospect of increasing financial stability in the future, talked up by Professor Smith soon had the financial sector eating out of his hands. Professor Smith also made it clear that he knew Rover was no ‘lame duck’ and that he had bought the company purely for its potential for profit – this, after all was the bottom line. Indeed, it is far to say that there was little opposition or resistance to the deal in the City – and certainly Westminster loved the deal, for the reasons discussed above. So, what could go wrong?

Well, certainly the takeover looked like manna from heaven, but apart from the ‘Britishness’ of the deal, it was hard to see what BAe could offer the Rover. Certainly rival car chiefs found the whole situation illogical because BAe was a cash-hungry company, as was Rover – and any talk of ‘synergy’ between the companies was certainly fanciful because any benefit that Rover may gain from BAe in terms of technology were marginal – and this would take years to filter through. The more pressing concern was how to generate a business plan that would bring in profits of £300m per year in order to fund the replacement programmes for some of the rapidly ageing models in the range.

BACK: Part five, Michael Edwardes arrives

NEXT: Part seven, life under British Aerospace

Keith Adams
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