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Last Updated: Tuesday, 8 July, 2003, 16:30 GMT 17:30 UK
Rover prays for Indian kick-start
By Myles Neligan
BBC News Online business reporter

Rover City
Rover hopes to sell up to 40,000 City cars a year
MG Rover's plant at Longbridge in Birmingham, which has been churning out cars for nearly 100 years, is a British industrial icon.

Once the nerve centre of the mighty British Leyland, and the original home of the Mini, Longbridge evokes the glory days of the British car industry like no other factory.

Conscious of Longbridge's heritage, Rover has even preserved the original oak-panelled office of the factory's founder, Lord Austin, Britain's first motor industry magnate.

What Lord Austin would have made of MG Rover's latest offering, unveiled at Longbridge on Tuesday, will never be known.

But he is unlikely to have taken the Rover City to his heart.

Made in India

For a start, the City will not be made in Longbridge, or anywhere else in Britain.

The car, a small hatchback intended to replace the popular Rover Metro, will be built for Rover in Pune, India, by the giant Tata conglomerate.

Longbridge factory
Cars have been made at Longbridge for nearly 100 years
Competitively priced at between 6,500 and 8,500, the City is seen as a rival to established small models such as Ford's Ka or the Fiat Seicento.

Rover, which dismisses speculation that consumers may be put off by the City's Indian origins, aims to sell between 30,000 and 40,000 models a year, a target that would lift its annual sales figure above the 200,000 mark.

The company will be fervently hoping its new model endears itself to the car buying public.

Stuck in a precarious position as medium-sized British player in a global industry dominated by giants, Rover can ill-afford a flop.

After being cut adrift by former owner BMW in 2000, loss-making Rover gained a new lease of life as an independent British carmaker when it was bought up for a nominal 10 by a consortium of West Midlands businessmen.

Buffered by a 500m loan from its former owner, the company struck out on its own, vowing to carve out a future for itself through partnerships with other manufacturers and innovative new models.

Credibility problem

But Rover has found the going far from easy.

The only possible way for Rover to survive is for it to become more nichey and upmarket, and this is a move in the opposite direction.
Stephen Cheetham, Sanford C. Bernstein

While it has successfully reduced its losses from 800m in its final year under BMW ownership, the strong pound has priced its cars out of overseas markets, forcing sales sharply lower.

Rover has also been obliged to fight a rearguard credibility battle, with most industry experts rating its chances of long-term survival at close to zero.

The company's fundamental problem, they say, is that it is too small to raise the cash needed to develop regular new models. Without exciting new products, consumer interest will wane, ultimately condemning Rover to oblivion.

Some analysts say Rover's latest model will do nothing to improve its prospects.

"It's difficult to see how the City could transform their fortunes," said Stephen Cheetham, head of auto research at investment firm Sanford C. Bernstein.

"The only possible way for Rover to survive is for it to become more nichey and upmarket, and this is a move in the opposite direction."

Partnership hopes

However, other commentators believe the City could deliver some immediate gains which might ensure that Rover survives in some form further down the line.

They argue that the new model will provoke a flurry of interest from established Rover buyers, helping to shore up the company's relationship with its network of dealerships.

This will help prime the market for Rover's all-important range of new medium-sized vehicles, due out next year.

More importantly, the City's low cost base means that strong sales of the car should bring Rover closer to profitability. This would make it more attractive to major car manufacturers on the lookout for strategic partners.

"Rover has a medium-term future if this car succeeds," said Professor Garel Rhys, automotive expert at Cardiff University Business School.

"But it must use that medium term to convince another manufacturer that Rover would fit in nicely with its constellation of companies.

"This need not take the form of an outright takeover, but Rover would benefit from having a reassuring corporate arm around its shoulders."

Rover unveils Indian connection
08 Jul 03  |  West Midlands
MG Rover workers vote for strike
10 Apr 03  |  Business
MG Rover takes stock
24 Feb 03  |  Business

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