News Analysis : The Phoenix that laid the golden egg?

Carole Nash Classic Insurance Specialists

Graham Eason

John Towers with a Rover 75, shortly after the Phoenix takeover
John Towers with a Rover 75, shortly after the Phoenix takeover

The author is a long-standing British car enthusiast and the owner of Great Escape Classic Car Hire. Following reports in the news earlier this week about the ‘Phoenix Four’ receiving further funds from the sale of former MG Rover assets, here’s Graham’s fascinating (and very well presented) take on the events of 2000-2005 and their legacy…

When news stories began appearing this week about Messrs Beale, Towers, et al I was immediately fascinated. I’ll be honest, I’ve always bought the line that the famous four feathered their own nests and hung the workers out to dry. This view was largely based on media reports and local anecdotes – for example, about the sale of Studley Castle, the former BL management centre located just a few miles from the Great Escape site. Like most people I have never had the time to peruse the 800 page Government report into MG Rover’s collapse.

Now, thanks to a link on AROnline’s Facebook group, I have. Not every word, I have to admit, but most of it. I have sacrificed a considerable amount of my already depleted brain cells to bring you a summary of what The Phoenix Four actually got up to. So here it is: a bitesized analysis of what killed MG Rover split into the main topic areas.

Sale by BMW

BMW logo

When Beemer decided to bail it sold the good bit – Land Rover – very easily, leaving it with the less desirable rump of MG and Rover. Everybody, including the Government, knew that this business was not viable in its current form, due to inefficient factories and ancient products. So either it would have to be drastically slimmed down or partnered with a suitable cash-rich car maker. This is why BMW provided a £500m ‘dowry’ to the Phoenix consortium to take the problem off their hands.

The BMW deal seems to have been concluded very quickly, particularly compared to the slow pace of the SAIC JV. This seems to suggest a lack of due diligence with BMW rather than a criticism of SAIC. Quite why it all had to happen so quickly is unclear but certainly issues like a business plan and the pension shortfall don’t seem to have received serious analysis by the Phoenix consortium. BMW gave Towers and his partners £500m to offload the English Patient – whether your plans are short or long term, that dowry alone feels pretty persuasive.

The Phoenix Four

The ‘saviours’ of Rover Group were:

John Towers – former Managing Director of Rover

Peter Beale – Finance Director who previously worked for a Rover dealer in Stratford

Nick Stephenson – Engineer who was a former Director of Rover/BMW

John Edwards – ran a Rover dealership in Stratford

Left to right: Towers, Beale, Edwards and Stephenson – collectively the Phoenix Four
Left to right: Towers, Beale, Edwards and Stephenson – collectively the Phoenix Four

Towers and Beale are generally acknowledged as having been well equipped for the roles they played in the business. Stephenson and Edwards, according to the Government report, were competent in their specialist fields but were pushed well beyond their competences and comfort zones.

Business structure

From the start the structure of the Phoenix Four deal should have raised alarm bells. The four formed a limited partnership and set up a business called Techtronic. Techtronic ‘bought’ MG Rover and received the loan from BMW. By design or coincidence, this structure enabled the Directors to distance their financial liability and risk from the actual business they had bought – and keep the cash outside the floundering car company. In effect, Techtronic lent money to MG Rover (which had to be paid back) and earned interest on the loan. This arrangement generated a surplus which was fed back to the limited partnership. So whatever happened at MG Rover, careful management of funds at Techtronic would enable the Directors to benefit from surpluses created by interest on the invested BMW loan and on loans to MG Rover. It didn’t matter if the BMW loan was run down and MG Rover defaulted – short term they would gain, receiving funds that didn’t need to be paid back.

MGR External

The Risks Taken by the Phoenix Four

The four Directors made much at the time of the purchase of their personal risk – and repeated this line after the collapse. However, the Government report finds that this simply wasn’t true – there was no personal risk. According to the Directors, they stumped up seed cash required to fund the bid and underwrote legal fees – in fact, they each put in £60,000 and did not underwrite legal fees. In the circumstances while £60k is a significant sum, taken against the windfall of interest on £500m it was hardly a risk. Similarly, immediately on signing the deal the Directors awarded themselves £1m ‘reward’ to be paid by MG Rover. Instead of paying themselves this money they opted to take ‘loan notes’ – while this kept cash in MG Rover it also earns the Directors even more money as interest accrued to them on these notes. They called in the loan during their tenure.

The Directors’ Remuneration

We all expect the people at the top to look after themselves. The Phoenix Four did this quite well. Each was paid well in excess of the salaries paid to Directors of other UK car companies including Ford. Their combined bonus packages were in some cases double comparable firms. None of the Directors except Towers had ever earned salaries even close to the sums they claimed. Yet apparently they complained that they were being underpaid. The four Directors were able to agree their remuneration between them – there were no external checks or approval required.

The Directors’ Bonuses

Throughout its ownership by The Phoenix Four MG Rover’s finances were on the slide. It sold less cars and made less money year on year. To survive it sold assets and worked through the BMW dowry. Despite this the Directors awarded themselves bonuses of around £20m. Even in a company like MG Rover Directors have to justify the basis on which bonuses are awarded and so they did this by using ‘milestones’ like car sales and progress with various Joint Venture projects. Except these claims never stacked up – whilst car sales floundered and JVs stagnated the directors funnelled millions in the form of ‘bonuses’ into an offshore pension fund directly from MG Rover funds – well out of reach of the Administrator. So, the Directors earned money via Techtronic and directly via MG Rover.

MG Capital

The latest news stories concern the disposal of MG Capital by the Receiver. This has resulted in another cash bonus for The Phoenix Four. They have argued that they risked their own personal assets to buy MG Capital and therefore they should benefit. Except, according to the Government report, they didn’t. They used the loan notes that they awarded themselves to underwrite loans obtained to fund the purchase. As the loans were awarded from MG Rover funds, a decision proposed and agreed only by the Directors, this can hardly be said to be a risk – if something went wrong they ultimately had access to a £500m pot that would pay the loans. The MG Capital deal was similarly hugely favourable to them that any short term ‘risk’ was far outweighed by the benefit. For their individual ‘investments’ of a few hundred thousand pounds in MG Capital, each Director appears to have received several million pounds.

Were the Directors committed to MG Rover?

I think it would be churlish to suggest that the four simply took the deal for short-term gain. They definitely worked extremely hard to make the business work and throughout their tenure many good decisions were made – rejuvenating the MG brand on mainstream cars being an obvious master stroke. They pursued the essential joint venture relentlessly although somewhat cackhandedly. However, they knew saving MG Rover was a risky prospect, so they made sure that whatever happened they would also gain if it failed.

The Joint Venture

Tie-in with China Brilliance was one of many joint ventures explored by the Phoenix team
Tie-in with China Brilliance was one of many joint ventures explored by the Phoenix team

There was a very real prospect of MG Rover being sold to the Chinese. The deal failed because of MG Rover’s parlous finances. The JV negotiations were led by Nick Stephenson, who is criticised in the Government report for being out of his depth. The SAIC project suffered from poor communication leading to unnecessary delays, which in turn it more spotlight on the finances. It seems obvious from the report that Towers and Beale, arguably the most experienced senior Directors, had little direct involvement in the negotiations. This was left to Stephenson and a consultant called Dr Li.

The arms-length approach taken by Beale and Towers, who in interviews quoted by the report claim little knowledge of the detail of the deal, seems the oddest part of this tale. Sure, they had an ailing business to run so a project manager was required. But when the success of the deal was the single over-riding objective of the partnership and the only route to long-term stability, was it wise for the most experienced Directors to stand back, only stepping in right at the end? Stephenson seemed to be so comfortable in the role that he gave the Chinese a last ditch ultimatum without consulting anyone else.

This odd state of affairs meant that the JV project proceeded quite haphazardly from MG Rover’s side and Stephenson had a lot of free reign. For instance, he was in a relationship with Dr Li, MG Rover’s specialist consultant on the project. She received a huge consultancy fee from MG Rover – far exceeding any fees she got from previous clients – as well as six figure ‘success’ bonuses for achieving various milestones. There is a lot of debate around what she actually contributed, but it is fact, according to the report, that her bonuses were agreed by Stephenson and, in each case, paid on the same day they were agreed – at a time when MG Rover couldn’t pay its main suppliers.

The JV negotiations dragged on and MG Rover’s finances headed south. The deal failed because SAIC didn’t want to take on these risks and debts, none of which The Phoenix Four was able to adequately explain away.

The failure of the JV must in part be due to the absence of a Plan B. With hindsight MG Rover’s parlous finances were always going to put the deal at risk and the longer the deal was delayed the bigger this problem would become. The Directors don’t seem to have had a contingency plan – either because they didn’t realise how bad things were (quite likely) or because they were simply fire-fighting (also seems likely). MG Rover tried to raise funds by selling assets but this could only ever be fiddling around the margins. In my limited opinion the Directors should have approached the Government much earlier to highlight their problems and request assistance to underwrite the deal.

The Government

A lot of flak was thrown at the Labour Government for failing to assist MG Rover and save the deal. It seems likely that, when Towers et al bought MG Rover, the Government realised it was a lost cause. Funding the company’s continued survival was felt to be an expensive option compared to providing regional assistance if it failed. The company’s structure – which effectively funnelled cash to the Directors as explained above – may also have created resistance to any Government loan. However, closer communication between the Government and company from the start might have helped speed up the Chinese deal – and flagged up the risk of failure caused by MG Rover’s poor cash position.

The Chinese

The various deals and agreements entered into and the sale of different assets and intellectual property to various Chinese companies is confusing and, ultimately, not that relevant to the main issue – namely, that SAIC clearly intended to buy MG Rover. It was the British company that caused the deal to collapse, not SAIC. As the deal dragged on – as these things tend to – SAIC realised that its exposure to risk and debt was increasing. In MG Rover it had a rather shifty co-conspirator which proved rather adept at providing half-truths and indulging in smoke and mirrors when it came to supplying information. It is reasonable to suggest that SAIC had a Plan B – namely that dragging dealings out made MG Rover weaker and therefore cheaper. However, I think SAIC would have preferred to buy MG Rover as a going concern – the company’s collapse and the loss of key talent surely wasn’t desirable. SAIC did pick over the bones when the Receiver was called in but it arguably failed to get what it really wanted – the technical know-how and quick access to the European market. The report makes clear that SAIC was patient despite being messed around.

The Workers

Forget all the history of worker-employer dissent at BL, by the time the Phoenix Four arrived the staff were remarkably committed to the MG Rover ship. They had suffered through several false dawns and the arrival of Towers et al felt like the company was back in the hands of people who cared. People, if you will, ‘like us.’ And who could blame them – in the Longbridge area many families had worked at the factory for generations – ‘the Rover’ was in their blood. For me this makes what the Phoenix Four did all the more disreputable. Sure, they wanted to save MG Rover. But unlike the workers they had a Plan B. I think that fall back doomed the company from the start – when you know you’ll be a millionaire whatever happens, why bother trying to be a mega millionaire?

The Pension Fund

In contrast to the burgeoning pension fund for the Directors, the Employee Fund was in a bad way – apparently around £400m short of its liabilities. Little is actually made of this in the report but I suspect this problem alone would have been enough to push the Chinese deal over the abyss. Why buy a company riddled with such liabilities and without an obvious upside? The pension problem was a ticking time bomb that should have been addressed as part of the BMW sale. This pension deficit simply got worse and worse under Towers and co, with little or no effort to resolve it. Whether this is indicative of their short term plans or naivety, who knows?

Could MG Rover have survived? 

When BMW offloaded the remains of BL few seriously expected it to survive. MG Rover was a mass manufacturer with a tiny output compared to its rivals. Its products were outdated, with nothing new in the pipeline, its manufacturing was outdated and it was underfunded, even with the BMW dowry. While Land Rover and Jaguar were arguably in the same place at the same time, they were niche makers with clear strengths in their chosen areas – canny investment would enable them to build on that good start. Only MG could be said to have something similar – but with only one aging product and a ropey reputation. Rover as a brand was dead in the water after years of nailing the Trident to everything from superminis to Hondas.

Even partnering MG Rover to a Chinese company feels like a doomed endeavour. Whatever the value of the brands, MG Rover needed so much investment in all areas of the business that it would surely have been better to buy the best bits, lure the talent and start afresh. Against a backdrop of contracting European car volumes and over-capacity, any investment in MG Rover has to feel misguided.

That said, I think MG Rover could have survived. A small capacity specialist company based around the MG brand and informally partnered with a major manufacturer for engines and components could have worked. BMW’s success with the MINI perhaps shows how this could have been done.

While this would have saved few jobs and lost Longbridge, it may have avoided the slow death experienced by the workers and the loss of their pension pot.

Whatever could have happened, it doesn’t overshadow what did happen. The media loves pantomime baddies and while it would be wrong to see the Phoenix Four as simply bad, they don’t come out of the MG Rover fiasco covered in glory. I don’t deny that the Directors of private firms are concerned first and foremost with themselves. This is how capitalism works. The problem in their case is the extent to which they protected themselves from risk, and managed their own interests, at the expense of the risk and interests of the company and its workers.

A failing company, for instance, cannot afford to pay its Directors more than Directors of comparable, more successful, businesses. And the morality of siphoning off millions of pounds for personal gain when the same company cannot meet its pension obligations is also dubious. Both these things may be legal, but that doesn’t necessarily make them right.

Unlike Governments, Directors of private companies are not democratically accountable. What the Phoenix Four did wasn’t illegal, so they’ve kept their millions. They may even feel it was justifiable due to the ‘risks’ they took. However, none of that detracts from that simple fact that a cash-strapped company does not benefit from draining large sums of cash to a few Directors, contributing to its failure. That is the Phoenix Four’s legacy.

50 Comments

  1. Some of the key questions include who advised the Phoenix Four and was there a conflict of interest? It was all done very quickly since the Phoenix Four were seen as politically much more acceptable than John Moulton’s earlier Alchemy proposal of rapid downsizing to become only an MG sports car manufacturer. BMW were quite generous, even though they had managed to dismantle what a few years earlier was seen to be a potential major competitor, even though keeping Cowley left them with a factory that would later prove to be too small to cope with the success of Mini. Reading the report, there were lots of discussions with other potential car manufacturers, many of them very obscure, but it suggests a lack of clear strategy also shown by clumsy projects such as the 75 V8 and MG supercar and the bungled partnership with Fiat, while the CityRover could have been done a lot better leading to a mutually beneficial long term relationship with Tata that might have eventually brought them back together with JLR. Pension fund deficits are common to many British companies. I think we have seen subsequently that SAIC is slow to make decisions in the way that MG UK has been run. Finally, if MGR had survived, would JLR be struggling even more now to get sufficient engineers and other staff they now need?

    • Tote agree chris MG/Rover should have gone down the Tata joint venture road far better instead of Launching the ancient/ugly City rover(Tata Inca)& as you say Launching the U~Boat engined V8 75 Buying the assets of a failed obscure unheard off? Italian manufacturer Qvale(Mangusta) with its massive ancient 4.6L Ford mustang/cobra Lump to be the basis for the MG X power abso ludacris decisions in a time when people were looking for economical modern cars i.e Diesel Hybrid & electric these guys were doing the exact opposite Churning out”Jurassic” period vehicles that unfortunately nobody wanted It down to Bad & ill advised management big time.

  2. The Phoenix Four were in a win win situation with the deal from BMW. The huge dowry and the often forgotten large stock of unsold cars gave them a massive trough for their greedy snouts. Add in a complex corporate structure where all funds ended up with them (although that was not obvious at the time). Meanwhile huge debts accrued with suppliers. I think even the Bank of Scotland caught a cold as their finance providers.
    John Towers was initially held in high esteem with the workforce and they were well and truly screwed by him/his team. Towers was the popular choice with the workforce and the government. Mainly as he proposed to keep things pretty much intact until a buyer could be found. Perhaps Jon Moulton and Alchemy Partners idea to develop MG sports cars would have worked, albeit on a much smaller scale.
    I was not aware that Stephenson was not only screwing the company as well as the Chinese adviser Dr Li. Sounds like a good old fashioned “honey trap”.

  3. MG Rover could have survived – A small capacity specialist company based around the MG brand. Isn’t that exactly what John Moulton (seen at the time as an asset stripping devil incarnate) proposed?

  4. A sad, sad, depressing tale, but, well told and researched nonetheless. I’m still enjoying the cache (???) of driving a 2004 MGZT in firefrost red about the roads clogged with euroboxes. Maybe that says more about me that anything but everyone comments on what a nice car it is and what a shame MG Rover aren’t around still making cars. A great pity IMHO….cheers

  5. An interesting article, although it does not bring any new information to the table beyond what has been widely reported.

    with reference to the stock of unsold cars that Techtronic 2000 inherited when it bought the assets of the former Rover Cars business, this was more of a liability for a company that still had to be assembling cars in order to continue trading. With such a large stock of unsold cars, MG Rover Group was in severe danger of undermining the residual values of its models in both the short and medium term, should they have ‘flooded’ the market with unsold stock, including for old stock R3 200 Series and HHR 400 Series. MG Rover Group had to slowly release this unsold stock gradually its dealer network over a period of eighteen months or so, in order to reduce further depreciation on its existing models. This was done rather well.

    Would MG Rover Group have survived under Jon Moulton? Possibly not given the severe recession that had a major impact on many far healthier companies from 2008 onwards. Also what many people do not recognise is the appeal that the Rover brand still continued to have. Say what you like about the ‘new’ MG Z saloons but, using SMMT data, if you do a like-for-like comparison of the Rover and MG models (i.e. Rover 25 vs. MG ZR, 45 vs. MG ZS and 75 vs. ZT/ZT-T), you will find for the years 2002 (the first full year of MG Z production) to 2004 (the final full year of production)that the Rover models consistently outsold their MG counterparts. Not just in the home market but more importantly in established and emerging export markets. Only in the last six months of trading did the MG ZR suddenly become the company’s best selling model. This would suggest that Jon Moulton’s vision to slim down the company and focus on just one brand was potentially flawed. What the company needed was new models which would have still cost Alchemy many tens of millions of pounds to invest in with a willing partner, who was happy to allow the Longbridge operation to undertake a mere re-badging exercise. In the end the company would have predominantly comprised of rebadged models that would have commanded high royalty fees from using body designs and likely engines too supplied by another manufacturer, as Alchemy Partners would not have been in a position to develop new models or engines to meet forthcoming new legislations.

    I, for one, would still be interested in hearing the Phoenix Consortium’s side of the story in order to gain a better understanding of all the facts that lead to the collapse of this company. Clearly much of the material in the press has traditionally not been of high quality when it comes to accuracy or considering events from a wider, more academic perspective. I live in hope that such an account will be forthcoming in due course…

    • The Alchemy plans were never made public beyond an initial intention to stop the 25/45 and make the 75. Thes rest was to focus on MG brand as a sports car manufacturer which I guess meant in the short term the MG F and building the BMC Mini until BMW was ready with its Mini.

      I do understand from BMW people I know, that BMW were open to working with Alchemy, it was part of the offer to attract them to take Rover off their hands. Within BMW I understand people were open to the idea of letting them take the outgoing Z3 platform and tooling and providing technical assistance for reskinning and access to the BMW supply chain.

      I am sure Alchemy had a view and given that the Z4 originally started as a concept study for a new Austin Healey, they may have and I certainly would have been pushing for that.

      Either way I think off both platforms had potential for a competitive range of MG sports cars with a BMW powertrain.

  6. Quote:

    “The four formed a limited partnership and set up a business called Techtronic. Techtronic ‘bought’ MG Rover and received the loan from BMW. By design or coincidence this structure enabled the directors to distance their financial liability and risk from the actual business they had bought – and keep the cash outside the floundering car company. In effect Techtronic lent money to MG Rover (which had to be paid back) and earns interest on the loan. This arrangement generated a surplus which was fed back to the limited partnership. So whatever happened at MG Rover, careful management of funds at Techtronic would enable the directors to benefit from surpluses created by interest on the invested BMW loan and on loans to MG Rover. It didn’t matter if the BMW loan was run down and MG Rover defaulted – short term they would gain, receiving funds that didn’t need to be paid back.”

    I think this part of the article sums it up for me very well, no matter what happened they’d be ok, sod the company and it’s workers; I’m alright Jack…

  7. No doubt they will have been advised to put this structure in place given the nature of their acquisition and if others had done the same in similar circumstances they would have received similar advice. A flaw in off loading a major industrial company to a bunch of amateur adventurists with no real backing apart from the cash pile left behind by BMW.

  8. We have to remember that the Phoenix Four wouldn’t have got involved unless they were going to make a packet. Towers took a lot of convincing to get involved in 2000, not least from the Unions. Their involvement kept a lot pf people in work for another five years, instead of the Alchemy option under which most of them would have been sacked in 2000.

    That said, it’s a very odd business model for the Directors to take so much out of an ailing company, and whatever happened with the pension fund sounds indefensible.

  9. The Phoenix aren’t on my Christmas Card shortlist either but they did keep the company going for 5 more years. If we look back at certain automotive history I seem to remember reading VW were in a similar predicament in the early 70’s with having a severely outmoded model range (all Beetle based) with buyers deserting in droves. They too were staring down the barrel of bankruptcy. Then the German Government stepped in , gave them a whopping great loan to develop a complete new range(Polo, Golf, Passat, Scirocco) , took a stake to justify giving out further subsidies and the VW Group have never looked back. As we know our Government of the day took full control of BL which would have and could have worked in a similar fashion had it actually gave the company a one off whopper loan to reinvent itself. Instead it gave out bits and pieces of cash for individual projects as and when it saw fit which led to potentially market winning projects like a properly updated Marina and SD2 being canned and other projects having budget limitation leading the final products to not be quite as good as they should have been or other products being left in production for too long.
    I give the Maxi (I love mine dearly BTW) as a perfect example. A car so far ahead of it’s time in concept it took other manufacturers 10-15 years to catch up, but let down with stupid inexcusable, easily remedied faults such as a lack of model options, an outdated interior when new and only mildly updated when the car was on it’s deathbed. The gearchange especially of the earlier cars is a matter of folklore yet history seems to have forgotten most FWD cars back then had crappy gearchanges.
    Add to this all the industrial unrest didn’t help one bit . Whilst I believe Red Robbo had his heart in the right place he was allowed to be too militant but that’s another story. After all the false starts of the 80’s the partnership with Honda was bearing some fantastic fruits (R8 anybody).
    By the mid 90’s Rover were being seen as a viable player in the BMW/Audi/ Merc market so I bet BMW could not have believed their luck when the company was offered to them on a plate. Less than 6 years later the viable parts of Rover (Land Rover and Mini) are sold or retained for BMW’s interest whilst the rest are left to whither and die.
    If BMW were serious about saving Rover they could have been ruthless when it came to build quality issues, sorting out the K series HGF issues and even stopping the doomed to fail folly of touting R3 as a competitor in the wrong market slot. I think they were more than happy to let Rover destroy itself. I suppose BMW’s take on it is it’s just business and I suppose from their perspective it just was. As for the £500million dowry. £500 million may sound like a lot of cash but that doesn’t even pay for a new cars front suspension development. When Rover bit the dust in 2005 I was appalled that our government just sat there and shrugged it’s shoulders giving it the old jog on Rover unlucky. Can you imagine if one of the major French or German car makers went belly up , would their respective governments just sit there watching a major employer go down the pan together with all the smaller dependant supplying companies? Me thinks not.

    • When the British Government was bailing out British Leyland it was not in a position to offer a “whopping” big loan. At that time the UK Government was going cap in hand to the IMF because quite simply the country was itself bankrupt.

      By the mid 90’s Rover were a tiny producers unable to generate the profits from its models to even fund its joint ventures with Honda, which is why they had become little more than a Honda with a Rover badge. The idea they were a threat to Audi, BMW and Merc is joke.

      Rover cost BMW £800m to buy, (a lot of money for a company that had not fully engineered its own car since the Metro) and then accrued £2bn of cash losses. The money they got for Land Rover £1.85bn (paid over 5 years) did not cover the value investments made by BMW just in Land Rover which included the state of the art Freelander production facility and the fully developed L322 Range Rover along with all the intellectual property that went with them. Stepping away from Rover hurt BMW and its investors badly that is why both CEO and CFO were sacked even though the CFO had been advocating disposing of Rover.

      As for bailing out MG Rover in 2005, why would you, it had nothing of value, its volumes were now sub 100K units per year, it had no new products just drawings to keep the Chinese interested. How on earth would the UK taxpayer have ever seen a return.

      • Just how bad was the position by May 2005? I understood they were producing very very few cars during those last months because of the massive amount of unsold stock (also didn’t they shut Longbridge for 6 weeks over Christmas 2004).

        Even if Brilliance had done a deal the long term prognosis for Longbridge would surely have been redundancies and any new models being made in China with some CKDs being made in the UK?

        • It’s a good point.

          As we can see with MG6 and MG3, the Chinese were in 2005 more than a decade away from being able to finance and develop a competitive product for the European market even with the resources of MG Rover.

        • In 2005 the company was short of essential components for the assembly process, having exhausted the goodwill and confidence of external suppliers.

  10. I think people have to remember that the £427 million dowry loaned to Techtronic 2000 was to actually help keep the company trading on a daily basis. No company can trade on no funds. This dowry enabled the MG Rover Group and its subsidiary companies to do this and, more importantly, keep more than 5,000 employees in paid work. It was also used to pay for the transfer of the Rover 75 production facilities to Longbridge, the accommodation of a further bodystyle (i.e. the Tourer) and also the development programmes for the respective MG Z saloon derivatives and a facelift of the MGF into the MG TF. All the aforementioned update models help to slow down the decline in sales of the existing models following the painful (and rather public) divorce from BMW Group which had undoubtedly had an impact on sales and consumer confidence.

    The Rover Group also lost many of its national sales companies and distributors in key export markets when it was disposed of by the BMW Group, as they had previously been linked to either Land Rover or BMW franchises. The article makes no reference to the efforts of MG Rover Group in trying to re-establish importers and national sales companies in many export markets.

    We should also remember the experience of John Towers as a former chief executive of the Rover Group until 1996 and Nick Stephenson as engineering director until he left in 1999. Amateur adventurists is not a term I would use to refer to their experience with the Rover Group or the motor industry in general. Out of their depth because there was no confirmed collaborative partner, would be a more accurate description.

    Could I as a mere ‘armchair critic’ with a love of Rover cars, two academic degrees (one postgraduate) and a wealth of knowledge of the motor industry have done a better job in trying to save MG Rover Group? Admittedly some product actions and publicity events I would not have invested valuable funds in, or not to the same level. But my decisions would not have likely saved the company or made the outcome any less traumatic. Most car manufacturers will probably privately admit they were waiting for MG Rover Group to collapse and therefore would not be proactive in entering into joint ventures or licensing agreements which would potentially give Longbridge a chance to keep on fighting and maintaining some form of competition.

  11. ” with the less desirable rump of MG and Rover. Everybody, including the Government, knew that this business was not viable in its current form, due to inefficient factories and ancient products. ”

    Surely when BMW acquired Rover in 1994 they could have foreseen the position in 2000 – 75 launched but sales of an ageing 25 & 45 now struggling. It wasn’t a desperate situation but a case of almost there with R30 and the planned new model range. If BMW had stayed, or been encouraged to stay, at the helm just a bit longer we could have had the full new range on the market. A range of new, ground up Rovers capitalising on the start made during the Honda years.

    I can see perfectly well why the Phoenix Four wanted to reward themselves well and to protect their personal wealth. However, I think they are to be strongly criticised for –

    (i) paying themselves salaries well in excess of those at successful rival
    companies. Taking excessive amounts from an ailing
    company
    (ii) treating the £500M dowry as theirs and earning interest off it. BMW had
    ‘left’ this for ROVER and so it should have been deposited in their
    account !!

  12. @ David 3500

    I would still question salary levels and paying the dowry to a “holding” company. However, reading your comments again makes me think how well MGR managed.

  13. I feel that the Labour government at the time didn’t really do a lot to help matters as I reckon they didn’t want to be seen as pro-car.

    The EU had each country set up almost as a character.
    So the Germans are set up as the industrial engineers while the UK is cast as the banking and economic powerhouse.

    As mentioned earlier, VW were in a similar predicament in the 70s with an undated range, and nearly went under. The watercooled Italian penned range saved the company, and they never looked back (even if their reliability is not as good as their marketing let on). (Lest we forget BL also got assistance in the 70s)

    The problem with the MG Rover range in the 2000s was that it was basically 3 cars, two of which were becoming dated and the 75 which was a big mainstream saloon selling when buyers were starting to turn their backs on the D segment.

    The Ford stipulation that they do not produce SUVs was something of a hand tied behind their back, when this model type was booming. These were the days when Nissan culled the Bluebird-Primera line and offered the Qashqai to a public who had been watching a bit too much Sopranos and 24. It sold, and continues to sell, like hotcakes.

    Of joint ventures:

    – Proton – the Malaysian manufacturer was selling old Mitsubishis, at the time selling reasonably well, and preparing to sell their own car, the Impian (heavily based on the Carisma / Volvo S40). They could’ve benefited from a European partner, the thought of MG and Lotus being sister companies would’ve been something to relish.
    – Matra – the plan to build the previous Espace, which was still regarded as a good people carrier. The abstraction between chassis and body would give a relatively free reign in restyling. MPVs were popular in the 2000s, and a streetwise-style cladding would’ve given them a ‘soft-roader’ which was becoming popular towards the end of the decade.
    – Tata – the CityRover plan was a disaster and risked damaging the Rover brand. Yet Rover needed models at the lower end, the 100 was long gone, the 25 was on borrowed time. A properly developed, tested and marketed model would’ve given breating space, Tata’s stewardship of JLR shows that they can do large premium models very well too.
    – Fiat – Fiat were struggling, and arguably even the MINI rivalling 500 range is keeping them in volume. The large Croma didn’t sell well, a D segment hatchback that looked like an MPV but didn’t offer the practcality. MGRover had been buying components on a low level (headlights from Puntos and Coupe rear lights for the SV) The Chrysler tie up would’ve been interesting, perhaps Lancia and Rover would’ve been partnered, the 300 as an 85, the Delta as a 45, Ypsilon as a 15?
    – Ssangyong – SUVs were becoming the bread and butter of mainstream marques. Ssangyong could’ve offered a small range, though they’d have needed to be sold as MGs. Would fans of the Octagon have stomached the ‘B’ and ‘Midget’ manufacturer selling 4x4s?

    • The problem with most of these potential JV partners was that the product they had to bring to the table wasn’t that good.
      Proton – Only sold in the West on price, losing the advantage of cheap Malaysian manufacture would nullify this
      Espace – a niche product, probably quite expensive to make, hence Renault moving to a more car like integral replacement
      Tata – Rover didn’t have the resources or time to produce a supermini out of the Tata original. Tata’s ownership of JLR has been a great success, but down to their management and JLR engineering/styling talent. Tata’s Indian car business is struggling badly.
      Fiat – other than a few sales to MGR loyalists, the products weren’t attractive enough, Fiat seem incapable of producing anything bigger than a supermini these days!
      Ssangyong – unattractive SUVs, who would want one instead of a Freelander?

  14. Following publication of a government report[1] into the failure of MG Rover, Towers – along with the other directors of Phoenix – have been disqualified from holding any company office in the United Kingdom or have undertaken not to do so. [

  15. I was at Longbridge when BMW took over and escaped to Land Rover a while later (actually I was a newly qualified graduate employed by Rover then made semi-redundant scrabbling around for any job I could find in the group). From my point of view, BMW never took Rover seriously anyway. They systematically ran the car section into the ground, asset stripped Cowley away from it and sold Land Rover for a decent sum, allowing the remainder to wither and die.

    Even Land Rover was very poorly served. Struggling with a terrible quality reputation, we had an extensive project to hit the right areas effectively to turn that around and BMW turned up with a completely different list of goals. Result – continued execrable reputation for quality.

    I know this is a little off-topic, but it did mean that Towers (always a great, sensible bloke when I met him) et al had virtually nothing to work with when they took over.

    • None of this is new. BMW had no interest in Rover, MG, or Land Rover. They were only interested in a UK manufacturing site and a brand that was sub-BMW. This was MINI. The fact that it was Cowley that survived was pure luck – the MINI was slated for Longbridge originally. But when the Longbridge unions raised their heads, BMW pulled the project and moved it to Cowley. In return, Longbridge got the 75.

  16. Then rump of MGR not only had an outdated and unprofitable range, it also lost the Gaydon technical centre, which went with Land Rover, and most of the development staff and facilities… Not an attractive prospect really.

    Thinking about the former DAF/Volvo/Mitsubishi/Nedcar operations, that was kept open and offered as a contract manufacture facility, and ironically is now taking up the slack from the MINI plant at Cowley being full. I wonder if something similar could have been done with part of the Longbridge facility?

  17. This is a very summary of the MG Rover rescue plan if that is what it could be called, as few people in the industry honestly thought it had any hope at the time. I was conversation with my MP shortly after the deal had been announced, as a West Midlands MP she had an interest and approached me at a meeting knowing I worked in the automotive industry, her comment on the deal was that she could not see how it could end well. I responded that if they were careful they had product and cash for 5 years, but I had to agree I could not see it ending well as there was nothing worth buying beyond the housing development opportunity for the Longbridge site.

    I had no special insight, this was what everybody recognised in the industry at the time, the best product they had the 75 had missed the market by a mile and the rest of the product was average and ageing rapidly, if they were careful they could cut the 400m of BMW cash they were burning a year down to a 100M. But as for a sale opportunity they lacked no proper development team and resources, the facilities and those that could had gone to Ford with Land Rover, they lacked no proper supply chain being heavily dependent on deals brokered with Honda and BMW and they had no substantial dealer network outside the UK and the UK network was in rapid decline for a number of months due to the announcement that they would not get the Mini brand.

    I have to say the MG versions they produced were remarkable given where they started and the budget, although the rushed job showed in the ride and handling compromise, they were all overly harsh other than the ZT V8, but this is hardly surprising sorting out the ride and handling on a car is a long, expensive process, MG Rover had neither the people and resources to do it. A similar thing happened to Saab with the “new/last” 95, an excellent car ruined by the lack and time and resources to finish it.

    The question is why did the Government and Unions jump on the Phoenix Four band wagon given the obvious “take the money and run” finance structure they were setting up and the fact that unlike John Moulton they were not bringing a penny of their own money to the table.

    For the Unions it was obvious, John Moulton would have trimmed back the whole manufacturing operation, this meant their members losing jobs and more importantly for the Unions, they would lose the substantial membership fees.

    For the Government it was less obvious, it was obvious that this was going to blow up and given that at the time Mr T Blair could walk on water as far as the UK electorate was concerned at that time, why risk taking a hit in later when you might not be so popular.

    The truth is though, the Government had blood on its hands, elected on a “Green Ticket” with “relatively” full employment they followed the strong strong anti-car agenda of the metropolitan liberal left. The New Labour architect Peter Mandelson in the second half of 98 as Industry Secretary managed to reject Toyota approach to expand Derby factory to build the Yaris (sending the work to France instead) and BMW approach for just 200m to pay for historic clean-up costs at Longbridge to put it on a level playing field with the Green Field sites they were being offered in Poland.

    With Rover burning 400 million of cash a year, and some 2 billion needed to modernize Londbridge including a new Press Shop and Paint Plant BMW investors were not impressed that UK Government was not interested. His decision sparked the Power Struggle in the BMW between CEO and CFO that was to cost them both their jobs and BMW massively expensive exit from Rover. Anybody who thinks BMW were never committed to Rover overlooks the 800 million it cost, the 2 billion in losses it accrued during their ownership and that it walked away from massive investments such as the Rover 75, the stillborn 55, a signed off L322 Range Rover, the state of the art production facility for the Freelander on top of the half a billion they had to pay for the Phoenix 4 to take it off their hands.

    • ” Anybody who thinks BMW were never committed to Rover overlooks the 800 million it cost, the 2 billion in losses it accrued during their ownership and that it walked away from massive investments such as the Rover 75, the stillborn 55, a signed off L322 Range Rover, the state of the art production facility for the Freelander on top of the half a billion they had to pay for the Phoenix 4 to take it off their hands. ”

      Very good point, argument.

  18. Very good read. I think if BMW who went on to make the mini gave it to rover-mg as is bl the brand would have been saved and rover could of even used the mini with a different body to replace the 25 zr. it is clear to see that the bmw 1 series could of also been a rover-mg car and from what i have seen it could of saved the brand by its self as the range of cars available the 25 and 45 in the main were really old and out dated cars from the 1990’s in the years of 2000-2005 they never really had a chance to lift the brand and revive it as who really wanted to buy a old car with a new name?? good cars yes bad business move’s made yes and also i fell BMW had a big part to do with it all as it was clear they only wanted the MINI name rights and they have made a fortune off it also bmw could of done more to develop and produce new rover-mg cars. moving to the 75 it is a good car but i feel it came to late to make the best possible impact for rover-mg. The goverment could of helped a whole lot more they are good at sending tax payers money over seas to help other countries some we have had wars with in the past but they wouldn’t stand by a british car maker… who voted for them? All in all I am sad that rover-mg went under and now i don’t think the rover name will make a come back as its i think owned by ford i guess if thats the case they could use it as an executive brand like lexus is to toyota but i don’t know. And as for the new mg cars the 3 is an exiting little package and good value the 6 has been a fail without the engines people want and the engines on offer in the 6 the 1.8 turbo is not good by todays standereds when put next to a vauxhall ford or vw. Lots of work is needed on the new mg cars range and they need to be made over here and for todays market not shipped here and put together then sold. End of the day its a sad story no matter how you look at it and mg now need to make cars they are good at and get a better range of engines

    • If BMW had just wanted the “MINI” brand then I am sure they could have found cheaper ways to obtain it than what they did with ARG takeover.

      For example given that BAe saw no future in it as a brand once they could no longer make the BMC Mini compliant with modern legislation I am sure they would have been happy to sell them the brand name for cash.

      • In addition to the MINI brand, BMW also wanted a UK manufacturing site, with a compliant workforce. This is what they were really interested in. To take a risk with a European plant – and the associated strict labour laws – was unacceptable for what BMW saw as a far from assured success. The UK offered such an employer-friendly environment, along with an established brand – MINI. The total investment made by BMW amounted to a little over half of the costs Ford ran up in the Focus MkI programme. I think you must agree, a shrewd business move!

  19. During the Phoenix years 2000 to 2005, MG Rover sales averaged about 3000 vehicles per week, from a peak of 4,000 per weeek in 2000. contrast that figure with the BINI of 7000 a week or 350,000 per annum, and then there is the possibilty of the MG3 taking off due to its competitive price, the loss of Rover in 2005 has been over compensated by Cowley alone, Rover under British management could not have been turned around the business to deliver such results

  20. MG Rover, the bit of Rover left by BMW, had little chance of long term survival. This is cited as the reason why BMW had no option but to dispose of it. However, BMW did not own MG Rover, they owned Rover Group. Hardly a company with no chance of survival in year 2000 – 75 launched, MINI about to be, R55 not too far from production and Freelander, L322 Range Rover.
    I can see why BMW could not sustain continued losses. There was so much potential, however. As I’ve said before they were so nearly there. Just how instrumental was the government in the final break up of Rover? How short sighted were they in refusing BMW’s request for £200M ? Comments I’ve read suggest that the German’s were not in the least bit impressed with the British government in this respect. Was this the ‘last straw’ for BMW ?

    • I think it’s clear that with mounting losses and falling market share BMW investors were nervous, when the Government made it clear that Rover’s problems were nothing to do with them they took action to contain those losses.

      MG Rover was the result of the panic that followed as the Blair Government swept the issue under the carpet.

  21. Although BMW could not continue with Rover losses, surely they did not want to ‘write off’ all their investment either. Back to the government again. I’m sure with a bit of vision and financial assistance from the British government BMW could have quite easily been kept at the helm of Rover.

    • But the UK Government of the time was anti car, they had committed to reducing car use (Prescott promise) and were busy taxing company cars off the road. The Metropolitan liberal left would not have been open to the idea of the UK Government also giving money to car manufactures at the same time, hence the decision to not support Toyota expansion plans in the UK.

  22. Whlst the 4 are not my favourite people, I do wonder that your article is very one sided.
    You state at the start that you were already biased in believing the worst, and you presented an argument that supported your bias.

    BMW took the crown jewels and biled with a significant dowry – knowledge, BINI, land, engineers etc so more than broke even after their terrible stewardship of Rover group.

    Did the rump stand a chance of surviving – possibly with a bit of luck, a reduction in staff (if possible with the ridiculous job for life clause) and a joint management and workers push with government support – and a joint venture. None of those really happened.

    What we got was 5 years more of great cars not especially well nailed together using cheap parts. That said I’m still driving mine daily 12 years later and wishing I could buy a new MG with real soul.

    • If you asked a BMW investor that they left Rover better off they would laugh or punch you in the face. The conservative estimate is that buying Rover reduced the value of BMW by 5 Billion.

      Knowledge? Rover had not fully engineered a car since the Metro, you only need look at the way a 75 / BINI is built to see the BMW DNA in its production engineering.

      BIMI? BMW studio conceived the concept and most of the engineering was done in Germany and it was all paid for by BMW.

      Land? The land bank had been well truly liquidated by BAe, the best Land Asset was the housing development opportunity at Longbridge.

      Engineers? Having been in decline for decades the best and brightest were recruited durring the BMW period and most UK went to Ford with Land Rover.

      Add onto this for BMW that it had to surrender massive amounts of its interlectual property to Ford with the L322 Range Rover and the Freelander production facility and later with the 75 being sold to China.

      • Quote: “Knowledge? Rover had not fully engineered a car since the Metro, you only need look at the way a 75 / BINI is built to see the BMW DNA in its production engineering.”

        Eh, em. You mean not since the Maestro and Montego of 1983 and 1984 respectively, which despite having Volkswagen and Honda designed gearboxes were “fully engineered” by British Leyland (Austin Rover Group from 1982).

        • The engineering of Maestro actually predates much of Metro. The last ‘inside engineered’ car was the Montego saloon – the estate body engineering was outsourced to IAD.

        • Exactly, the Maestro and Montego did not have an in house transmission (that was cancelled) or even one developed for them, instead they were off the shelf VW and Honda designs so we can say these cars were not fully engineered by BL /ARG.

          It’s a critical point because as a manufacturer of FWD cars they made a strategic decision not to develop or be involved in the development of FWD transmissions and never fully developed an end on FWD transmission.

          In the BMW era they were dependent on old Honda, PSA licences and agreements brokered with Getrag by BMW.

          When they were looking to put Fiat engines in the 75, they were going to be buying ZF gearboxes from Fiat.

  23. Graham fails to appreciate the irony in his remark ” buying ZF gearboxes from Fiat ” . Precisely : Fiat didn’t engineer its gearboxes . Nor did the hero-worshipped ( by Graham ) BMW . The vast majority of BMW gearboxes of the time came from Getrag ( Manual ) or ZF ( automatic ) . The sort of polemic in which Graham is indulging is wasting our time, which is a bit tedious to put it mildly

    • Clearly you have no proper understanding of how manufacturers like BMW and Fiat work with the the likes of Getrag and ZF.

      They work as business partners from the very start of their product development process (from both sides) and the key difference they have as a result with the “customer only” approach BL/ARG took is that they share the intellectual property of these transmission systems.

  24. All BMW had to do was set up Longbridge to reintroduce the Allegro estate and then badge it as a BMW 1 series, it would have sold by the million.

  25. You could, arguably, look back before the BMW take over, to the fact that Honda were prepared to take a large stake in AR/MGR, but BMW came in at the last minute as, seemingly, preferred bidders, all be it with an entirely different (but unseen at the time?) longer term agenda.

    Other factors assisted MGR in their decline, besides the Phoenix 4, such as the failure of TWR & the loss of the development work being done on the 45 replacement/55.

    BMW wanted certain AR/MGR ‘assets’, which is what they achieved, and disposed of the ‘unwanted’/unfashionable/costly remainder (inc the pension deficit) with a (relatively) small sweetener thrown in for the ‘lucky’ succesful bidder.

    IMO it wasn’t the Phoenix 4 that buried MGR, they merely put the final nail in the aged coffin, the lid of which had been firmly attached by BMW

  26. The troubles of the “English Patient” tore great rifts in the Boardroom of BMW, heads rolled especialy Bernard P, I seem to recall a statemnent in the press that the Rover project had cost BMW the equivalent of the profits of a generations worth of BMW cars

  27. I always thought the new Mini was largely designed in the UK. It could never have been considered a definite world winner before launch. Originally they hoped it might sell 80,000 year. The old Mini sold less than a quarter of that. In the event the MINI has sold many times its forecast. The Rovers and MGs might’ve sold better but for their desperate reputation in Ireland and Europe at least. BMW probably could have solved the English Patient but it would have taken too long and the losses were having a serious impact on BMWs own finances. In a way a master stroke to sell off Land Rover for so much plus they were able to launch their own 4wd X range in direct competition. Also arresting a 50 year decline was always going to be difficult. But not impossible. One decent new car could have saved Rover. And it wouldn’t have cost 700 m to design the suspension, the New Mini cost much less than that. MINI was a stunning design at launch, the moment I saw in in prototypes I knew it was a winner. Now if someone could persuade BMW to re introduce one of the brands they still own and make a saloon based on a BMW, maybe a Riley or Triumph. Other brands are too damaged to succeed. The Phoenix 4 at least continued on the history of total incompetence of previous Managers since the 1960’s. Even Mrs Thatchers boy Michael Edwards could only slightly slow down the decline, if he did anything at all, I wonder was he well paid, I seem to remember he got paid handsomely as well and was proud of being so valuable. It was sad to see BL Austin Morris decline as I grew up. But after say the Austin 1100 none of the replacement models were very good cars, and nearly all were badly designed and made, some were mediocre such as the Allegro and Marina, Metro wasn’t great. The Honda co operation worked quite well though robbed Rover of much of its independence. Selling out at the time to BMW had obviously stunned Honda and that probably caused more damage than anything else. Eventually leaving Rover back with an outdated range and no design help from Honda.

  28. Sorry, I think you are letting them off lightly. They structured the business in such a way that the profitable parts gave them an income at the expense of the core business which was losing money hand over fist. A clown could have kept the business going as long as they did bearing in mind the willingness of the workforce and the dowry from BMW. They have snuck off to a happy retirement on the proceeds of the money they extracted from the business. Shameful what they did and shameful that no laws were broken (allegedly).

  29. Thanks to David 3500 for at least trying to counter the predictable re-cycling of all the flak against the Phoenix Four. Too much to comment on in detail. but let’s at least nail the calumny about the Pension Fund. Who was it who single-handedly turned Europe’s best collection of occupational pensions into one of the worst ? Why, our old friend Gordon Brown of course, with his smart-arse “no one will notice this sleight of hand ” rearrangement of the tax reliefs on pension funds. It wasn’t MGR’s fault that there was pension black hole, any more than it was the fault of hundreds of other company pensions that went into deficit – to such an extent that virtually no-one in the UK today offers a proper occupational pension!

Leave a Reply

Your email address will not be published.


*


WordPress spam blocked by CleanTalk.

This site uses Akismet to reduce spam. Learn how your comment data is processed.