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Last Updated: Monday, 22 November, 2004, 12:07 GMT
MG Rover's Chinese future
Analysis
By Will Smale
BBC News business reporter

Rover 45
The Rover 45 model is now a bit long in the tooth
As MG Rover prepares to join with state-run Chinese firm Shanghai Automotive Industry Corporation (SAIC), the UK carmaker says it is about to secure the long-term future of its Longbridge plant.

Yet with SAIC effectively taking over MG Rover in a 1bn ($1.85bn) deal that will give it a 70% stake in the merged company, just what is to stop the Chinese firm switching all production to China?

After all, manufacturing costs are obviously markedly lower in Shanghai than they are in Birmingham, and SAIC, China's largest carmaker, has no emotional attachment or loyalty to Longbridge's 5,200 staff.

MG Rover chairman John Towers has said that the future of Longbridge is definitely secured, and that the Chinese see the plant as an integral component.

European importance

"As we all know, it is very easy to sell your business to China, it is very easy just to pick everything up and take them across there," he said.

Rover has got to get new cars onto the market and get them out quickly, otherwise it just won't survive
Automotive analyst Prof Peter Cook

"Our objective, of course, was not to do that, our objective is to produce a partnership where cars are made in China, but also continue to be made at Longbridge."

Automotive expert Professor Peter Cook, from the KPMG Centre for Automotive Industries Management at Nottingham Trent University, agrees, predicting Longbridge will become a specialist site when the deal is completed, expected to be in January.

"I think we might see over time Longbridge focusing on particular models - the upmarket ones, while the Far East building the cheaper price-critical vehicles," he said.

Prof Cook added that he thought MG Rover and Longbridge would both be vital to SAIC because they gave it a foothold in Europe, which remained one of the world's two great automotive market places.

Despite MG Rover making continuous losses since it was bought four years ago from BMW for just 10, Prof Cook said SAIC, which saw 2003 profits increase by 41.7% to 1.5bn yuan ($181m; 98m), was going to do well out of the coming together.

"The Chinese are getting a lot out of the deal, they are getting a brand, getting a foothold in Europe, and getting access to European technologies and management know-how."

Brand value

Professor Stan Siebert from Birmingham Business School, agreed, pinpointing the technological know how at MG Rover as being what most interested SAIC.

MG Rover chairman John Towers
Has Mr Towers managed to secure a profitable future for Rover?

He also said Rover continued to have "a really good brand name, even though it has become somewhat tarnished over the last few years".

And Professor Cook believes that instead of there being a future risk to Longbridge, SAIC, which in addition to making its own cars also produces parts for General Motors and VW, may instead consider opening an additional plant in the US.

"There are today three main global car markets - the US, Europe, and the growing Far East market," he said.

"The Chinese are going to want to keep things going in Europe."

Investment boost

But why is MG Rover so happy to sell off its independence?

In stark terms, it simply has no other choice.

A number of its models such as the Rover 45 are now rather long in the tooth and the company does not have the multi-millions required to invest in developing replacement cars.

Instead MG Rover was recently forced to introduce a new super-mini model - the CityRover - which is actually simply a rebadged Indian car.

"Rover is out of line at present," Prof Cook said.

"It has got to get new cars onto the market and get them out quickly, otherwise it just won't survive."




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