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Wednesday, 11 July, 2001, 14:23 GMT 15:23 UK
Where now for MG Rover?

By BBC News Online's Orla Ryan

MG Rover is continuing to forecast a bright future even as it reports a net loss of 254m.

The loss was largely in line with expectations and the car company maintains - as it has all along - that it can go into profit next year.

Indeed, the figures for the eight months until the end of December last year compare favourably to the 780m loss that Rover made in 1999.

MG Rover's hope is that sales will be driven higher by the new models to be launched later this year.

New models drive sales?

In June, MG Rover sold 6,916 cars, taking a 3.21% share of the UK new car market. This is slightly lower than the 3.94% share of the market it enjoyed in the same month last year.

But Rover's hopes are pinned on its new models. The company is to introduce an estate version of the Rover 75 as well as new MG sports cars.

Just over one year since BMW sold the car company to the Phoenix consortium, most observers believe the John Towers' team has handled a difficult hand well.

Forecasts of disaster and predictions of glory accompanied news that the Phoenix consortium had bought Rover from BMW for 10, after an earlier deal struck with rival Alchemy had fallen through.

John Towers: thought to have played a difficult hand well
John Towers: thought to have played a difficult hand well
So far, MG Rover has been helped by the generous terms of the BMW sale.

The German company left Phoenix a 500m ($756m) interest-free dowry to help cover the cost of redundancies and restructuring. By the end of the year, the car company had a cash position of 329m by the year end, including the loan from BMW.

It has also met and surpassed its sales forecasts for last year.

It topped its original prediction of 200,000 car sales last year, selling 205,000 cars, though critics raised concerns it had only been able to do so by twice cutting prices.

But Mr Towers has claimed the company is now making more "quality sales", sales on which the company makes money. In May last year, it was estimated that Rover was losing 1,500 on every car sold.

For the current year, the company has set a target of annual sales volume of over 180,000 cars.

Automotive expert Professor Garel Rhys agrees that MG Rover has performed well in the past year, but says it is the year ahead that is key.

Hopes that they could cut losses dramatically in 2001 have been dashed by the continued strength of the pound against the euro as well as the high price of the powertrains it bought from BMW.

"They are more or less where they thought they would be. At the end of this month, MG cars are in the showrooms. After that, there really aren't any excuses," Professor Garel Rhys said.

Originally, it was expected that MG Rover would seek to link up with a larger car manufacturer, enabling it to save on the estimated 1bn cost of developing a new car.

But in more recent interviews, Mr Towers has indicated that the company is more likely to link up with a components supplier.

Middle ground

The crux of MG Rover's dilemma is that it is trying to occupy a space in which few car makers have succeeded.

The company is neither in the luxury niche market, such as Porsche, or the mass market, with giants such as Ford and GM.

Longbridge factory
Productivity at Longbridge is much lower than at comparable European plants
There are some successful mid-volume regional car makers - such as Peugeot - but traditionally large volumes or high-end exclusivity are seen as keys to automotive success.

And Peugeot's success can in part be attributed to its high productivity. By contrast, MG Rover's Longbridge site is said to be half as productive as comparable European sites.

MG Rover is confident it can succeed in this harsh middle ground even if it doesn't forge an alliance with a large company.

Some believes that outsourcing is the way forward, leaving MG Rover in charge of design, branding and distribution - but bash less of the metal that goes into its cars.

Chief executive officer Kevin Howe said:"Our 2000 performance was better than our business plan in all respects and represents a major step towards our target of overall business profitability."

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11 Jul 01 | Business
MG Rover trims losses
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