MG Rover’s losses in the eight months to the end of last year were less than half the level of the previous year, it was announced this week.
The news came in a statement to shareholders in the same week its new MG range received enthusiastic praise from the press. The company said it is on course to make a profit by the last quarter of next year.
The news was welcomed by unions, politicians and businesses in the region. Birmingham Chamber of Commerce president John Hart said: ‘John Towers and his team deserve credit for turning round Longbridge from the dark days of 12 months ago. The workforce has played a major part in the recovery of one of the region’s most important assets.’
Though the West Midlands economy escaped the worst case scenario of a total closure or a drastic cutback in production at Rover’s Longbridge plant, companies in the region are still facing tough times.
Keith Chambers, a director of locally based business recovery and insolvency practitioner Langard Lifford Hall, said the firm had been involved in ‘a spate’ of insolvency and recovery work among engineering firms in the region. ‘Things have been tough for a long time, and there’s been little change. Insolvencies are continuing to run at a high level and business confidence has not been there since 18 months ago. Cuts in interest rates have not been enough to bring about a recovery.’
MP Richard Burden, whose Birmingham Northfield constituency includes Longbridge, said: ‘It’s certainly the case that things are hugely different to how they would have been if Rover had gone under. That’s not to say everything’s fine for engineers and component suppliers. They still face the adverse sterling/euro exchange rate, being undercut on price, and increasing attempts by the big car makers to drive costs down,’ he continued.
Burden added: ‘Though productivity and quality have shot up, for second, third and fourth tier suppliers under pressure to cut costs there isn’t a great deal of slack. For them the euro debate is not something for the future.’
MG Rover reported a loss of £254m for the eight months from the Phoenix takeover to the end of last year, compared with an operating loss in 1999, under BMW ownership, of £780m. The end year cash position of £329m was ahead of the business plan and retail sales of 111,800 were 900 up on the plan.
The company says it is on target for 186,000 sales this year and 206,000 next. MG Rover insiders say losses this year are expected to be under £200m and the business plan forecasts breakeven next year with profitability improving from late next year.An MG Rover spokesman said that the savings were due to a number of factors.
It is now a small 6,500 strong firm with all activities on one site. It has no outstanding loans, whereas in 1999 it paid £80m in interest to parent company BMW; all its assets are fully written down, avoiding £210m depreciation costs incurred in 1999. It is no longer doing low-margin fleet deals which left BMW with 65,000 used cars to dispose of in 1999. Redundancy costs have fallen from £80m in 1999 to £36m last year and none in the current year.
Having acquired the Longbridge Powertrain operation earlier this year, where K-series engines are built, it will make savings on the transfer pricing the company charges itself for engines, and will get the benefit of engine sales to other companies, notably Land Rover and Lotus.
An announcement on the development of MG Rover’s crucial new medium-sized car, scheduled for production in 2004, is expected within the next few weeks. It is likely the company will work closely with suppliers and that the model will be based on a shortened Rover 75 platform.