Rolls-Royce employees, suppliers and car dealers are still trying to digest the implications of the unexpected turn of events last week. Their concerns are understandable. While the German generals plotted their automotive battlefield manoeuvres, and VW believed it had outwitted BMW in the fight for Rolls-Royce, the livelihoods of hundreds of foot soldiers in the UK were at stake.
The picture which now emerges is clear if unconventional. Volkswagen gets the Bentley brand and the Crewe factory, while BMW gets the Rolls-Royce name and will establish another factory in which to make them from 2003.
Until then the German firms will collaborate, with BMW licensing VW to use the Rolls-Royce name and continuing to supply engines and other components.
It was immediately obvious which group got the better bargain. In the end, VW paid Vickers £470m for the Bentley bits and BMW paid Rolls-Royce plc, the aerospace company which was the legal custodian of the famous double-R name and logo, just £40m.
The charitable view is that Vickers chairman Sir Colin Chandler lived up to his super-salesman reputation. To others, he resembled a Portobello Road market trader selling something he did not own to a naive German tourist.
The events will transform what is now Rolls-Royce Motor Cars. The company, which employs 2,600 people, made just over 1,900 cars last year, split roughly 60% Bentley and 40% Rolls-Royce.
The long-term plans promised by the new owners sound encouraging, though the sudden resignation of Graham Morris, Rolls-Royce chief executive, raises doubts about the future of manufacturing at Crewe.
VW talks about new Bentley models, annual volumes of 10,000, and engines sourced from Cosworth Technology, now part of VW’s Audi division. It is hard to imagine production increases of this level being achieved without additional staff, or a lot more bought-in components, services and sub-assemblies. That would be excellent news if the UK retained production.
However, VW group policy is to put all new vehicle projects out to tender to all factories, whether VW, Audi, Seat, Skoda or Lamborghini.
BMW says Roll-Royce volumes will be in the 1,500 to 2,000 a year range, which would be at least double last year’s number. It will need to create a factory and recruit a workforce. BMW could use part of a Rover Group factory, or some spare capacity at a Rolls-Royce plc site. Derby, where Toyota has a factory, is lobbying hard because of the firm’s historical links with the region.
BMW will also have to consider greenfield sites around England, particularly if regional development aid is available. That’s the jam promised for early next millennium. Meanwhile, Rolls-Royce motor cars must survive on more of a bread and dripping diet.
Nine months of sordid squabbling over ownership has resulted in a 30% plunge in demand. With the new R-R Silver Seraph and Bentley Arnage on offer, it was not exactly the trend expected by the company. The problem is exacerbated because profits at the luxury car maker are marginal and entirely dependent on volume.
Rolls-Royce’s task of rebuilding battered consumer confidence will not be helped by Morris’s resignation. Earlier, he had reassured employees about job prospects, but stepped down when the final agreement raised doubts in his mind about the future of Crewe.
It won’t be easy to find Morris’s replacement from within VW, because scores of senior managers have been culled since the arrival of chief executive Ferdinand Piech.
The recent record at Rolls-Royce is one of revolving-door management. It has lost three chief executives since the end of 1994 Peter Ward, Chris Woodwark and now Morris. Each resigned because of differences over aspects of Rolls-Royce strategy.
The shadow hanging over all this is the increasing expectation of economic slowdowns in the UK and North America, Rolls-Royce’s two largest markets.
Car demand is cyclical, and a dip is overdue. That suggests lower revenues when VW and BMW must start spending on factory rebuilding or construction, and on the design and development of the next generation Bentleys and Rolls-Royces.
Whatever happens, the newcomers seem destined to precipitate a shake-out among Rolls-Royce suppliers. For economies of scale, VW and BMW will want them to share as many components and production systems as possible with their own future flagship models. Not many of those suppliers will be based in the UK. Some of the smaller ones doing business with Rolls-Royce and its tier one suppliers are destined to lose out.
The trend in the motor industry suggests VW and BMW will choose to buy in most sub-assemblies and have Bentley and Rolls-Royce lovingly assemble them by hand.
The formula is already successfully employed by Ford. Precious little of a DB7 is made by Aston Martin, whose task is to assemble and market the vehicle. Design and development was even contracted out to a supplier.
The real manufacturing of engine, transmission, bodyshell, exterior panels, interior trim, convertible hood, even painting is done by suppliers. It is the only way forward for marginal volume players such as Rolls-Royce and Bentley.
Chandler interview, page 17
Ninety-nine years of turmoil
Rolls-Royces and Bentleys will have been made alongside each other for 70 years when the two are finally separated in 2003. The products belied the reality. It was not a period of great prosperity or stability.
1904 First Rolls-Royce car made.
1919 First Bentley made.
1931 Rolls-Royce buys assets of Bentley from liquidators. Cars made together at Derby two years later.
1946 Production moves from Derby to Crewe.
1971 Rolls-Royce in receivership on account of aero engine problems.
1973 Rolls-Royce car business launched as separate company.
1980 Vickers buys Rolls-Royce Motor Cars.
1997 Vickers offers Rolls-Royce Motor Cars for sale.
1998 VW tops BMW bid for Rolls-Royce. Weeks later, tripartite deal between VW, BMW and Rolls-Royce plc (the aerospace company which still owns the R-R name and logo) agrees to split the car maker.
2003 VW will retain Bentley brand while BMW will finally get Rolls-Royce.