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Wednesday, June 23, 1999 Published at 15:12 GMT 16:12 UK

Business: The Company File

BMW gambles its future

Trade secretary Byers and BMW boss Milberg both hope for Rover's success

BMW's investment plans for Rover are of crucial importance for both companies.

The Rover File
Rover's Longbridge plant needs the cash injection - aimed at modernising the plant and producing a new range of cars there - while BMW needs success in the middle range market to ensure its long term survival.

On Wednesday BMW announced it is investing £2.5bn in the central England plant.

In total, BMW plans to invest about £3.4bn ($5.36bn) in its UK operations over the next five years.

[ image: BMW boss Joachim Milberg knows that his company's future as an independent carmaker is now at stake]
BMW boss Joachim Milberg knows that his company's future as an independent carmaker is now at stake
In return, the government is chipping in £152m of state and local council aid, which will be paid in instalments linked to productivity targets.

But industry observers warn that BMW could pay a heavy price if its plans for Rover prove unsuccessful.

Professor Garel Rhys of Cardiff Business School says the massive investment poses a considerable risk to the German manufacturer.

"You can put the money in facilities and products but it remains to be seen whether the customer thinks it is the product they want.

"If that is not the case you are spending money for little return."

Prof Rhys warns that BMW is in danger of seeing its investment vanish - endangering both BMW and Rover.

"Success is important to BMW as much as it is to Rover. Both need it to be successful to survive," he said.

And he warned that if BMW failed to recoup its investment, it could be vulnerable to hostile bids from rival car producers.

"If this fails BMW is naked and has no long term future on its own."

Rover's spiralling problems of low productivity, falling sales and mounting losses have claimed the scalps of several BMW bosses since the German company bought the UK carmaker in 1994.

[ image: Bernd Pischetsrioeder lost his job as BMW's chairman because of Rover's problems]
Bernd Pischetsrioeder lost his job as BMW's chairman because of Rover's problems
Ex-BMW chief Bernd Pischetsrieder and his one-time deputy and rival Wolfgang Reitzle both quit after a boardroom bust-up over the future of Rover. Dr Reitzle, who had been widely tipped to take over from Mr Pischetsrieder, was on record as saying Longbridge had no future.

But BMW is pinning its hopes on increases in productivity at Longbridge.

To help it along, Rover will get a new model range - a revamped Rover 200 and 400 series, a new Mini to be built from the end of next year, and a new medium-sized family car range on the road at the end of 2002.

All this, says Prof Rhys, is in pursuit of the Bavarian manufacturer's main strategic aim: to maintain its independence.

"They are giving it until 2003 but before that there will be signs whether it is successful or not," he said.

And, commenting on good sales figures for the new Rover 75 - dubbed by some as the 'last chance saloon - he said that the success of one model alone could not guarantee a company's survival.

"It is the range that will save the company."

He said BMW is having to move into uncharted territory, and "whether that territory is winnable or whether it exists for them is open to question".

European Auto Research analyst Jonathan Storey said: "From 2002 the (new Rover) products should start to shine through and at the end that will really be a key factor- if the products are attractive enough to pull their weight in the market place?"

And industry observers warn that continuing global overproduction in car manufacturing together with Rover's perennial failure to excite consumers, could mean that BMW's massive investment backfires in a big way.

But Professor Rhys said BMW had to take the gamble "for the same reason it bought Rover in the first place - to achieve the critical mass it needs in the market place".

"It is certainly a gamble but one BMW feels it has to take because it is the only game in town to get the volume it needs."

And he said BMW "is between a rock and a hard place" in terms of the market.

With its 30% share of the executive and luxury market under threat and not likely to expand, the company must move into other areas.

As Prof Rhys commented: "With Rover the opportunity is there to get bigger, but if it goes wrong then it will be in the same position - but more quickly than by going it alone."

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