Many happy returns?

Having snatched their company back from the brink a year ago this week, MG Rover’s management faces an even greater challenge: the next generation of cars.

Rover workers cheered as John Towers entered Longbridge on the day the Phoenix consortium bought the company from BMW for a nominal £10 a year ago this week. Euphoria, though, soon gave way to reality, and some difficult questions.

Could Towers’ vision of the renamed MG Rover as an independent car maker really work? Was the target production figure of 200,000 vehicles a year – a small number in volume car making terms – viable? Crucially, how would it find the resources to produce new models?

The new company had a lot on its plate. Chairman Towers and his deputy Nick Stephenson, both senior ex-Rover directors, outlined far-reaching plans, including the transfer of Rover 75 production from Oxford to Longbridge, the introduction of MG versions of the Rover saloon range within a year, and an ambitious return to motorsport.

To develop new models the company gave itself until around March this year to tie up a collaborative deal with another car maker. The management and design team was swiftly bolstered by the recruitment of Kevin Howe as managing director, Rob Oldaker as director of product development – both ex-Rover men – and design guru Peter Stevens.

A year later, answers to some of the questions are emerging. The 75 move has been accomplished; a complete new MG range, plus the Rover 75 Tourer, were unveiled at March’s Geneva Motor Show. The Tourer goes on sale this month, with the MG saloons following in summer. And last month a subsidiary company, MG Sport and Racing, was launched with the cars that will compete at Le Mans, in saloon racing and world rallying.

Garel Rhys, professor of motor industry economics at Cardiff Business School, delivers an upbeat assessment of MG Rover’s first year: ‘To achieve what they have in a year is meritorious,’ he says. ‘They’ve effectively created a company out of the assets they bought from BMW. They are on course from making a loss of £300m last year to break even next year and make a profit by 2004.

‘They’ve developed new products. They’ve moved the 75, and improved productivity by 20% through the efficiency of sharing indirect labour costs, such as maintenance, over the whole range. Quality is as good, if not better.

‘What’s more, the cars are selling: dealers are happy. Rover is listening to the dealers and producing the models it’s easiest to sell – it’s almost a pull system.’In a sense they’re on a cost holiday: they bought the company from BMW with balance sheet liabilities of zero and a dowry of £500m; they have a positive cashflow of at least £100m and sometimes up to £400m a month, and they’re not eating into the dowry at any great rate.’

Going it alone

All very impressive. But the central question remains: how will MG Rover find the resources to develop new models? In particular, replacements for the 25 and 45 models, introduced as the 200/400 in 1995 and facelifted two years ago, will be needed by 2004.

Last month Towers distanced himself from the original plan, saying he now believed the company could stand alone. Instead of a partnership with a bigger car maker, he indicated that a new model programme could be based on a series of technical collaborations with suppliers – an approach used, for example, on the MGF sports car.

Expert opinion is divided on whether this independent strategy could work. ‘Unless they’ve got a radically new way of developing vehicles I would be very concerned,’ says Peter Cooke, professor of automotive industries management at Nottingham Business School. ‘The motor industry is becoming more project management-based and outsourcing more and more, but I don’t think that Rover has the depth or critical mass to do that.’

Rhys has a different slant. ‘Plan A was an alliance with another vehicle maker. But in a year they haven’t got the track record – for a collaborator it’s a high risk. Plan B is to use the Rover 75 platform to replace the 25/45.’

For a car of its size, the front-wheel-drive 75 has a short wheelbase and long overhangs so it could be easily be shortened to make the basis of a smaller car. This would have the advantage of being more cost-effective than designing a complete new platform.

‘That would give them until 2006 or 2007 to form an alliance for the longer term, by which time people will say ‘this is working’,’ says Rhys.

On managing alliances with suppliers, Rhys says: ‘When it was owned by British Aerospace [in the late 1980s/early 1990s], Rover had the biggest bought-in content of any manufacturer. There is no car maker better placed to deal with outside companies.’

MG Rover’s Nick Stephenson puts yet another gloss on the subject. ‘We are actively looking at a wide range of possibilities of working with other players. There are plenty of alternatives on the table. The biggest issue is selecting the best way forward.

‘We do believe our own position would be best served by using a network of suppliers. They’re natural partners – we deal with them every day. The time is right – many suppliers have developed part vehicle or even whole vehicle capabilities so that they can supply, for example, a whole cockpit or powertrain.

Dual brand strategy

‘You can see how comfortably we could have a design that was entirely our own with an input from suppliers doing complete subsections. As things stand, that is certainly our most-favoured position.’

But he pointedly does not say that MG Rover is not talking to other car manufacturers. ‘The two approaches are not mutually exclusive.’ A definitive announcement is expected in late summer.

Stephenson remains ‘absolutely 100% confident’ that the 25/45 range can be kept fresh until the replacement is ready towards the end of 2004, citing the new range of MG models as evidence of what can be done.

Some have dismissed these as badge engineering. But Rhys says: ‘It’s genuine. They’ve worked on the engine to make it more powerful and lowered the suspension…when you drive them they feel completely different from a Rover.’

Stephenson says: ‘When people get their hands on them they will see they stand massively apart from Rover products. That’s the real strength of our dual brand strategy – each can be very distinctive. Rover no longer has to be all things to all men – Rovers can become more elegant and sophisticated, and MGs can be pretty raw.’

The MG range will also gain ‘real substance’ from the motorsport programmes and exposure to the cutting edge technology used, for example, in the Le Mans car. ‘It’s fantastic promotional fodder but it’s also a very real part of our development,’ says Stephenson. ‘MG products will benefit from on-track experience and race-car technology.’

He says the company is proud of its ability to be fast-moving, but the setting up of the MG Sport and Racing subsidiary, which will carry out development of competition vehicles and their roadgoing derivatives, is ‘a very clever way of making sure that we’ve got an even faster-moving, focused group appropriate to lower volume products and race car programmes.’

Prestige sports saloon rivals such as BMW, Mercedes and Jaguar can take this as a statement of intent that the revitalised MG intends to challenge them on their own turf. A version of the turbocharged MG X Power engine from the Le Mans car – the first all-new MG engine – is likely to find its way into a specialist road car, Stephenson promises. ‘It’s a serious piece of kit – two litres, over 500 horsepower — and it’s exactly the kind of stuff we’re about. The guys out there who think they produce the high performance cars of today had better look out. In two years time people will say ‘if you want the ultimate car on the block, it’ll have to be an MG’.’

The Longbridge question

The first hint of what is in store is a planned rear-wheel drive – so that it can take the extra power – MG ZT.

One other key element in MG Rover’s strategy which the company had expected to resolve by now is the future of the Longbridge powertrain plant, known as Midland Powertrain, which remains under BMW ownership. This supplies K-series engines and the R65 and PG1 gearboxes to the company’s entire range as well as for Land Rover, now owned by Ford. MG Rover had hoped to buy the plant by the end of last year, but talks are still continuing. ‘Negotiations are progressing entirely satisfactorily,’ says Stephenson. He adds: ‘It would be a big disappointment if BMW decided to sell it to someone else, but we have acknowledged that possibility and have an alternative strategy.’ He refuses to confirm reports that the company has held talks with General Motors and Fiat over the supply of small petrol and common rail diesel engines.

A year ago, Stephenson said that Rover had ‘great products’ but that one of its biggest tasks was to rebuild the brand to match. Is he satisfied with progress?’My definition of a strong brand is one that has a clear identity, desirable characteristics and is in the market at the correct pricing position and volume. We’ve worked hard on getting those three elements right.’

How does he feel about the fact that, if the launch of the Jaguar X-Type is a success, Jaguar will be producing about the same number of cars as MG Rover – but with the might of Ford behind it. ‘We are happy to be considered a specialist brand. Being part of Ford may give Jaguar advantages, but it may also bring some disadvantages. I bet they aren’t as fast as us.

‘They’ve had to rebuild their brand, and they’ve done a fine job. But they’d better look out if they think they’re going to be the pinnacle of sports saloons in future. They’ve got a new competitor in town.’

Sidebar: New MG derivatives add pizzazz to Rover range. Plus race cars for Le Mans, BTCC and rallying

Rover moved fast under its new ownership to announce its intention to put the Rover 75 Tourer, or estate version, into production in 2001. It had been built into the 75 model programme from the start, but BMW shelved launch plans as Rover’s losses mounted. It is due to go on sale this month.

Details of the MG saloons emerged in January this year in advance of the cars’ unveiling at the Geneva Motor Show the following month. MG Rover announced not just MG derivatives but a complete range: an entry level version, a ‘core’ model and an ‘Ultimate’ version.

All are billed as ‘drivers’ cars’, with heavily-revised suspension design promising tauter handling and steering, uprated brakes and more power. They go on sale this summer.

ZT (based on the 75): top-of-the-range executive sector models with 160bhp entry model, 260bhp V8 core model and radically re-engineered 375bhp V8 Ultimate version. Both V8 versions will have rear wheel drive. All available as estate as well as saloon versions.

ZS (based on the 45): 4-door saloon and 5-door hatchback; Core version has 2.5 litre KV6 engine with 177bhp; entry level version with 1.6 and 1.8 K-series engines and 2.0 turbo diesel. Ultimate version will be derived from BTCC Tour race series.

ZR (based on the 25): hot hatch in three- and five-door versions. Core version with 160bhp, 1.8 litre K-series engine also used in MGF Trophy 160 special edition model. Ultimate version based on world rally car spec. Entry-level versions with 1.4 and 1.8 K-series engines and 2.0 turbo diesel.

MGF Trophy 160 SE: more powerful version of MGF went on sale in March.

Motorsport

MG Lola EX 257: designed and built by Lola Cars International, powered by MG X Power 2-litre, four-cylinder turbo engine developed with specialist Advanced Engine Research, to compete in Le Mans 675kg prototype class which Lola won last year.

MG EX 259: also developed with Lola and AER to compete in British Touring Car Championship. Based on ZS, with race-tuned 2 litre KV6 engine, due to make its competition debut in September.

MG EX 258: Rally car based on ZR, to compete in Formula 3 Super 1600 category. Developed with rally expert GSE Motorsport, using tuned 1.6 litre K-series. Due to make its debut in November.

Sidebar: An eventful year

2000: May 9 : Phoenix consortium led by John Towers and Nick Stephenson (left) buys Rover from BMW for £10. Kevin Howe appointed chief executive.

June: Rob Oldaker appointed product development director. Shelved Rover 75 Tourer estate car is revived.

July: Peter Stevens appointed product design director

August: Rover 45 2-litre V6 goes on sale. Company announces intention to return to Australian and South African markets.

September: Name changed to MG Rover

October: Mini production ends and Rover 75 production begins at Longbridge. Deal agreed with Cat Logistics to distribute spare parts

November: MG Rover staff and dealers given chance to buy shares – 25% of company’s equity for each group

December: 200,000 sales target achieved

2001: January: Details of MG sports saloon ranges revealed

February: Rover 75 tourer, MG ZR, ZS and ZT ranges based on 25, 45 and 75 unveiled at Geneva, as well as surprise MG ZT sports estate.

April: MG competition cars for Le Mans, touring car championship and world rally series unveiled; MG Sport and Racing subsidiary and MG X Power brand launched.

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