Saturday, April 09, 2005

The Strange Death of MG Rover

Well, as if it hadn't been trailed enough, Rover is now an ex-business. 6,000+ jobs are toast, Thatcher's life mission to deindustrialise the UK is complete (you can die now, Maggie, it's done!). I'd like to point up some things about this, some of which I've written about before. Basically, the first thing to remember is that Rover has been run by idiots for years. When the Phoenix team bought it in 2000, they had to hire students to count the cars in stock from satellite photos because BMW either didn't know - didn't know! - how much inventory they had, or weren't telling. Which puts all the talk about "the English patient" at the time in perspective.

Since then, though, we've seen one of the most horrible examples of shameless self-enrichment at others' expense in British history. The restructuring of the Rover complex was conceived to get all the profitable bits of the firm out of the MG-Rover Group, the car factory, and into the hands of the Phoenix chaps. This may not seem that bad, until you remember that a sizeable chunk of the original capital was put up by Rover workers themselves. They got shares in MG Rover Group, not Phoenix: so they have now lost everything. Another point: the famous £427 million interest-free loan from BMW was paid to Phoenix (well, actually to another shell company, Techtronic, but this can be collapsed for clarity), not MG. They then charged MG Rover interest on it. What this means has only just dawned on me-as shareholders, the Phoenix group have only the same minimal claim on the assets as the workers who bought in. But as creditors, they are at the top of the heap behind only the Inland Revenue.

Expect a very big supermarket on the site.

They probably think they did a hell of a deal in this, but it turned out they weren't as smart as all that. The other winners, the big winners, are SAIC, the Chinese group they were trying to sell the plant to. SAIC put up £62 million in loans in the winter of 2004, and as a condition of this demanded and got access to Rover's intellectual property. They have already got the drawings for the K-series high efficiency engines (what they wanted all along), the Rover 75, and the right to build it in China - and they also have a claim to recoup their £62 million. SAIC's decision to walk out of the deal neatly avoided taking on any of Rover's liabilities. And, now the Rover engineers and stylists whose heads hold the institutional memory that goes with the drawings are unemployed, they can hire as few or as many as they want.

It is reported that SAIC were spooked when they saw some of the accounts that were far worse than Towers and Co. let on. I don't know if this is the truth, it could be DTI spin, but if so it's an incredible example of that rare phenomenon, someone who really did outwit themselves. Duped by their own chicanery.

Another point-what doomed Rover was its inability to finance the development of the new medium car, the long-planned Rover 30. It couldn't fund it because it couldn't shift enough units to generate the cash flow to pay for development costs. When the old British Leyland was about to be savagely restructured preparatory to privatisation, the hard-left union men put out their own counter-plan to the official on. The main critique was that size mattered, and that without a critical mass of production Rover would never be able to keep up technologically.

Who can now say they were wrong?


Anonymous said...

From the USA this looks like a typical head-on crash between British business and reality. But we are headed the same way - GM (and maybe Ford) cannot stay in business without shedding health and pension costs. GM may spin off several profitable businesses and declare the rest bankrupt.

This will stick our taxpayers with the pension costs. The health care will vanish, and so will debt. The company will then restart and make money.

Since the dismal choice of bankruptcy is probably the best possible, we can expect GM to do something else.

It seems that the people controlling Rover have taken care of themselves quite well. Cie la vie!

Steve Austin said...

Nice blog. Please check out my out of debt blog. It is all about out of debt.

kostenloser Counter