By J. GRAHAM DAY – Chairman and Chief Executive of the Rover Group
Anyone who has been reading the newspapers or watching television recently could be forgiven for feeing: confused about what is happening in Rover Group. I am grateful, therefore, for this opportunity to set the record straight. Last week it was announced that agreement has reached between British Aerospace and following talks with Brussels for BAe to aquire the Governments majority shareholding in Rover Group. The deal now requires the approval of BAe shareholders at a meeting to be held in August before it is completed.
In the last few days the Rover Group has made an announcement concerning capacity, specifically at our Cowley South Works and our pressings plant at Llanelli in South Wales. Quite properly, we have been questioned, on why we reached this decision and why we decided to announce it now. The reason is that we have not formulated a precise plan and and we cannot give our employees the detail I would have liked.All I could say to the Unions when I met them this week was that we estimated some 2,500 jobs would be affected at Cowley South Works and 900 Jobs at Llanelli. We believe that Cowley South Works would close in the early 1990s and Llanelli in 1990. I did state that we would continue to produce our current range of cars at Cowley and Longbridge, and I said that the closures were not forced on us by either Brussels or British Aerospace. I did not forecast other closures. The decisions were made by Rover Group. If there were any realistic other choices I would grab those options with both hands. I did not have the luxury of other options, but I would have liked to give our people the full story. The reason I could not was because there was enormous media speculation which had to be answered.
I regard the statements from Brussels during the EEC deliberations over the BAe takeover about even-handed treatment with some bemusement. I do not recall the same amount of speculation , leaking and disclosure of commercial information when the restructuring of Renault was being discussed. Why could I not have told our people of possible intentions earlier? Until the deal with BAe was nearing a possible conclusion, there were a number of options. One of theseâ€”one which my board and I did not favourâ€”was sale to another car manufacturer. I believe that had this happened, there could have been a far worse scenario, with wholesale closures and redundanciesâ€”not just in our plants but throughout our components suppliers and dealer network.
The deal with BAe brings stability to Rover Group. It resolves the ownership Issue which has dogged the company for years. Our employees know that the company’s future is in their hands. What we all now must do is build and sell cars which the public wants to buy, at prices which will generate sufficient profit to fund our operation and our future development programmes.
But why do we have to close any facilities at all? The short answer is that we have capacity to produce 750,000 units a year, but are actually producing about 500,000 unitsâ€”a level I confidently expect to maintain over the next five years. The car market is fiercely competive, and if we are to stay in business we must offer high-quality products at a price the customer is prepared to pay. This means that we have to review constantly not only how we build cars but also how we use our facilities. Costs are a vital factor and surprisinglyone of the biggest items of expense in car manufacturing is local rates. Therefore, if we can produce the same nunber of cars, or more, using fewer facilities it makes a major impact on costs.
Now, what of the future for Rover Group? We have reduced capacity. We have not, and do not intend to, reduce production. Our production rose last year, has risen this – about 14 per cent compared with the same time last yearâ€”and if we continue to get things right will rise again in the future. I have made no secret of our hopes to sell more “up-market” cars. But I have said repeatedly that we will stay in the sectors we are now in – small, medium, executive cars and specialist four-wheel drive vehicles. We will go for market niches, but we will continue to sell vehicles in these sectors, and more at the upper ends of those sectors. The simple reason is that we can make the profits we need in this way, rather than selling basic models where rock-bottom pricing and heavy discounting is the order of the day. I do not see a great future in competing there with Eastern Europe or Korea. Important also are the shifts in the market generally towards more highly specified cars.
So far as our product range is concerned , I have refused to detail our future model programme on the grounds that this does nothing but help our competition.
But perhaps I can lift the curtain just a little. We have model plans until the end of this century, and next year we will introduce a new car codenamed R8. This is a mid-sized car, but contrary to current mythology will not replace directly any of our existing products.
Of course, cars will be phased outâ€”a reflection of improving technology, and changing market tastes If nothing else. But our current range. Mini, Metro, Maestro, Montego, Rover 200 and Rover 8OO, is proving itself where it countsâ€”in the market place. Our philosophy is “listen to the customer”, and with sales currently over seven per cent higher than last year customers are telling us our model range is in tune with what they want.
I confidently anticipate that five years from now we will be employing about the same number of people as today. For while some jobs are, regrettably, being lost, others will take their place. Last year, for example, about 2,000 new jobs were created, the first increase in a decade.
And that has to be good news. Not just for us or the 2,500 UK businesses that depend on us, but for Britain as a whole.