News : Deloitte fined £14m over MG Rover advice

Carole Nash Classic Insurance Specialists

Deloitte

The news agency Reuters reports that MG Rover’s accountancy company, Deloitte, has been fined £14m by the Financial Reporting Council (FRC) for failing to manage conflicts of interest in its advice to MG Rover Group prior to the company’s administration in 2005.

Deloitte and partner Maghsoud Einollahi had acted as corporate finance advisers to firms involved with MG Rover and the Phoenix Four, including giving tax advice while Deloitte audited MG Rover. The accountancy firm repeated comments it made in July that the ruling could restrict the advice accountants can give firms.

The FRC, which brought the case against Deloitte, said an independent tribunal also backed the watchdog’s call for a severe reprimand of the firm. Deloitte repeated previous statement that it disagrees with the tribunal’s main conclusions.

The £14m fine is a record of its type, following stronger sanctioning powers given to the FRC after being criticised for being too lenient in the past on accountants. The previous record fine was £1.4m for PricewaterhouseCoopers in 2012 after it wrongly said JPMorgan Chase Bank was keeping customer money ringfenced from its own. The fine was below what the FRC wanted. Maghsoud Einollahi was fined £250,000 and was also banned from the profession for three years.

A spokesperson for Deloitte told Reuters, ‘Over the coming weeks, we will continue our discussions with relevant stakeholders and professional bodies about the potentially wide ranging impact on the profession and wider business community of the tribunal findings.’

MG Rover

Keith Adams

Keith Adams

Editor and creator AROnline at AROnline
Created www.austin-rover.co.uk in 2001 and built it up to become the world's foremost reference source for all things BMC, Leyland and Rover Group, before renaming it AROnline in 2007.

Is the Editor of the Parkers website and price guide, formerly editor of Classic Car Weekly, and launch editor/creator of Modern Classics magazine. Has contributed to various motoring titles including Octane, Practical Classics, Evo, Honest John, CAR magazine, Autocar, Pistonheads, Diesel Car, Practical Performance Car, Performance French Car, Car Mechanics, Jaguar World Monthly, MG Enthusiast, Modern MINI, Practical Classics, Fifth Gear Website, Radio 4, and the the Motoring Independent...

Likes 'conditionally challenged' motors and taking them on unfeasible adventures all across Europe.
Keith Adams

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17 Comments

  1. Perhaps the 14m could be put into a pot such that some sort of nationalised volume domestic car making industry could be established, helping bring jobs to the economy.
    Part of the fund could be used to licence a recognisable bramd from Tata, and the rest buying the old Civic, CRV and soon to be discontinued Accord production lines from Honda…..

    …. wakes up and realises it was just a dream

  2. An insult. Chickenfeed fine to these dirty bastards that make several billions a year.

    The equivelant of a champagne lunch bill. C**TS.

  3. The whole thing is a very sorry and sad story…

    If all the money that seemed to have gone missing from the MG Rover balance sheet plus all the money spent on investigations/fines had been available to invest in the company when they needed it – would things have been different?

    Who knows?

    Would things have been better if shares had been publicly traded from the very start, thus more capital from the outset and of course the pressure and the beady eyes of share holders to keep happy.

  4. Out of interest (this is a complete fantasy question) how much investment do you think it would take to create a new volume car producer?

    So we’re talking;

    Design and development of an initial three car line up = £?
    Investment in production = £?
    Number of staff realistically needed = ?
    Staffing cost per year = £?
    Marketing = £?
    Additional logistical costs = £?

    Discuss away…

  5. £14million wouldn’t cover the wage bill for the first year, and the idea of resurrecting Honda production lines is complete folly – what would be made on them?? Cars that nobody wants?

    The global car manufacturing industry is at severe overcapacity as it and consolidation is necessary, so adding to the glut is just money down the toilet.

    This fine is a warning shot to second and third level pen-pushers who might be tempted otherwise to cover up the shenanigans of the fraudsters at the top in exchange for a ‘few hundred thousand’ Chrsitmas bonus for signing off the dodgy accounts.

  6. The task of selling even 25,000 cars to dealers at £9k each without making a loss is huge, and a profit making business turning round these sorts of volumes would be worth around £140 million. Bear in mind that Daihatsu (with no UK presence) makes around 500,000 small passenger cars a year and has been struggling. The scale is huge, so any mis-management will have huge impacts.

    One way of making a small-scale profit could be to market obscure or ailing products produced in other countries, and tweaking them for the UK – I reckon £14million might just do it if you buy in some RHD Iranian SAIPAs at rock-bottom prices and modified them to allow their sale in the UK at £5,250 (at car supermarkets, who could also carry out major warranty work?). Daewoo started along these lines in the UK.

  7. £14 million gets you redesigned door handles on a Mondeo.
    It cost Toyota over £5 Billion to get get Lexus up and Running.

    Pull a stunt like this in China and you would be hosed by firing squad.

    Thanks to people like this and worst of all the Robber barons at banks the ordinary man in the street is on his arse.

    They need hanging, and all we do is say “oh yeah,anyway wasnt X Factor good”.

  8. There is massive overcapacity. If a car manufacturer would donate a complete car architecture then it would still need hundreds of millions to get a new brand up and running. The nearest that you might get would be if say BMW wanted to relaunch Triumph. If they took the new 1 Series FWD platform and spun off a Triumph Dolomite they might be able to get away with spending £500 million. That is why whichever way you look at it MG Rover was doomed. Even if they had spent all their dowrey on a new mid range car they would still be bust because the volume just wasn’t there. Even TCV which was the best thing they developed would have needed to sell 250,000 cars a year at an average selling price of £20k just to make the economies work.

  9. Hindsight is a wonderfull thing but if you can cast your mind back thirteen years then the 3 choices that were avaliable to ‘MG Rover’ were:

    1. Managed closure using the BMW cash. – The BMW Plan
    2. Downsizing to MG (or perhaps another brand), selling off everything you could for revinue, maintating the smallest of footprints at Longbridge and hope to become a niche player that was profitable and/or saleable. – The Alchemy Plan
    3. Continuing the volume manufacture concept with view to find a technology partner and at best 50.1% ownership of the company in the medium term. – The Phoenix Four Plan, as supported by the Unions, the Government and I would imagine 99% of ‘us’

    Towers and Co ran with option 3, which even at the time I believed that they had no better than a 30-70% chance of survival. With the huge odds stacked against them they required strong and inventive leadership, focused use of all resources and a little luck.

    Sadly they had poor mananagemnt, seemingly no collective focus and little if any real positive luck.

    I felt it was over when they the X80 arrived, I understand it was supposed to be a ‘hey look what we can do’ car but it reaked of desperation to me.

    The not so fab4 certainly feathered their nest but I still would remind people that they did keep 6500 souls employed for 5 years and I think they did genuinely tried to make a go of it, albeit at times unbelievably poorly exicuted.

    It was always a long shot but I think even if the X80, the rwd 75/ZT, the 2004 refreshes, the employment of Kevin Howe and his reportedly dubious mangement style and even more dubious decisions never happened; and the excessive pay and pensions of the P4 was utilzed on the bussiness and not by them personally; and the 20 or so million the post collapse cash that HMG ‘loaned’ them or spent on the seemingly endless investigation; and the 14Million quid fined from Deliotte all went into the pot for MG Rover I doubt they still would have made it after TWR went down and with it the new medium car.

    TWR’s collapse was the deathblow as far as I can see, prior to that they had a underdogs chance of making it to fight another day, but the day work on RDX-60 stopped in early 2003 MGR was all but over.

    Towers and Co were gready but it was TWR and the Arrows F1 folly that must shoulder a chunk of the blame… I still can’t look at the Force India F1 team without thinking ‘what if’

    • At the time I don’t believe anybody with knowledge of the motor industry believed the Phoenix Four plan was to make a go of it, the plan was and could only be to repackage the business so that it could be sold on another manufacturer before the BMW money ran out.

      I suspect Towers thought he could broker a deal with Honda or PSA following on from his work with them in the BAe years at Rover, however I suspect any discussions they had were just out of courtesy and the only people who did make a serious offer was Fiat and that just went no further than selling Stilo body shells and diesel engines.

      The issues caused by the failure of TWR only highlight that they had nothing of value to offer an emerging market manufacturer lacking a proper design and engineering resources with Gaydon being part of Land Rover sale, not only that but they also lacked key manufacturing facility of a Press Shop with Swindon staying with BMW for the Mini.

      If TWR had survived and management had focussed resources on the RDX60 and brokered deals with TWR and STADCO to set up a proper design facility and Press Shop at Gaydon to be part of package to be marketed to emerging market manufacturers would it have succeeded?

      I still doubt it, because in a similar time line Fiat were developing the Bravo with the same objective of being a minimal investment entry into the European 5 door hatchback market sector, however as was seen despite the Bravo being a well-rounded and good looking package (much better than the ugly and expensive to produce RDX60 ever looked set to achieve) it failed to make any progress in this highly competitive market sector.

  10. Oops I meant Red Bull Racing not Force India.. Dietrich Mateschiz wanted to buy TWR Arrows but Tom Wilkingshaw didn’t sell and ultimatly Mateschiz went on to buy the Jaguar F1 team and renamed it Red Bull Racing… which has done rather well.

    If TWR Arrows was sold prior to collapse then maybe TWR enginnering may have finished the RDX-60 and we would now be taking about how MGR will get finance to replace that car.

  11. My first thoughts on reading this (some weeks ago) were “yet another question mark over management issues”

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