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Last Updated: Wednesday, 27 April, 2005, 12:49 GMT 13:49 UK
'Cycle of decline' doomed Rover
MGF sports car
MG Rover struggled to tailor its products to meet demand
MG Rover's collapse was the result of a 40-year 'cycle of decline' in which its various owners failed to manage it effectively, a report has said.

Rover's fate was "largely sealed" by the time of its 2000 takeover by the Phoenix consortium, according to a study by the Cambridge-MIT Institute.

It says Rover was stymied by its inability to develop profitable models.

"The real surprise is not that Rover has gone under - it is the process took so long to happen," the report says.

The last British-owned volume carmaker went into administration earlier this month, leaving 5,100 employees out of work.

Shared blame

In an analysis of MG Rover's collapse entitled 'Who Killed MG Rover?', the Centre for Competitiveness and Innovation at Cambridge-MIT says that no single individual or company can be held responsible.

Instead, it says Rover's decline from the 1960s onwards was because of a range of factors.

These included an ill-conceived product strategy, a failure to integrate different areas of the business, multiple ownership changes and, ultimately, a lack of capacity to develop new products in key markets.

The 'black hole'... is in our view largely the consequence of a dying company that consumes its assets in order to meet its operating excesses
Cambridge-MIT Institute

Among those to blame, the report says, are former owners BMW and British Aerospace and the management of British Leyland Motor Corporation, which owned the brand in the early 1970s.

The 'Phoenix Four' - the four businessmen who bought MG Rover from BMW for 10 in 2000 - are criticised for "portraying an illusion" that Rover could continue as an independent entity.

'Black hole'

While not commenting specifically on widely reported allegations of a black hole in the company's accounts the report's authors - Professor Nick Oliver and Dr Matthias Holweg - say this may be a result of a desperate attempt by the business to raise cash.

"The 'black hole' cited in the press is in our view largely the consequence of a dying company that consumes its assets in order to meet its operating excesses," the report says.

Rover's failure can be traced back to the late 1960s, the report argues.

Despite becoming the world's fourth biggest carmaker in 1968, British Leyland Motor Corporation was intrinsically weak.

The 1,000,000th Mini is launched in 1959
Despite booming sales, trouble was already brewing in the 1960s

Financial functions were not fully integrated while models often competed with themselves, pushing up costs and limiting sales.

Later, Rover's image was damaged by industrial disputes in the late 1970s.

Lost chance

Although Rover enjoyed an upturn in the 1980s - when a partnership with Honda enabled it to launch several new models - its sale by British Aerospace to BMW in 1994 disrupted product development.

"Rover lost a complete product development cycle due to the takeover by BMW in 1994," the report says.

"British Aerospace clearly played a major part in Rover's demise by shedding one very appropriate partner (Honda) for a less appropriate owner (BMW)."

Despite the successful launch of the Rover 75, BMW was unable to turn Rover around, effectively sealing its fate when it abandoned plans to develop a new mid-sized series in 1998.

'Fundamental problem'

Rover's planned sale to venture capital firm Alchemy Partners in 2000 - dropped because of union pressure - would have been a "much more sustainable option" than the Phoenix deal, the report says.

"The main reason behind Rover's demise was an inability, which started to manifest itself 50 years ago, to manage its constituent operations as well as its major competitors were able to do," the report concludes.

"Even when cash was injected, the company lacked the capabilities to fix this fundamental problem."

A MG Rover spokesman said the Phoenix consortium had always recognised the need to find a joint venture partner.

"The report makes much of the need for MG Rover to find economies of scale," he said.

"The joint venture with Shanghai Automotive would have made combined sales of one million a year but unfortunately this partnership did not work out."

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