Saturday, November 13, 2004

MG Rover - How John Towers Made My All-Time Shit List

Back in early 2000, if you had barged into Tommy's Bar at Royal Holloway, University of London, and demanded of me who had most impressed me in the last six months, I would have unhesitatingly told you that John Towers, the former production director of Rover Group who had just saved the Rover plant from closure, deserved all our congratulations. The previous owners, BMW, had wanted to shut down the car plant and flog the land. That didn't stop them wanting to hang on to the profitable bits - the Mini production line, the Rover 75 line and the Midland Powertrain gearbox plant - of course. But the core business and thousands of jobs would go. Nobody, at first, looked like doing much. Although the tabloids worked themselves into an anti-German froth, they didn't feel at all certain in arguing for government intervention. After all, that was exactly what they opposed, no? The Trade and Industry Secretary, Stephen Byers, seemed at first to agree. A small, boutique, New Labourish sports car business might - might - survive. But nothing more.

As the complicated negotiations went on, though, it became clear that something might yet be saved. There were doubts about the numbers. There was a growing critical mass of anger in the Labour Party and, most of all, the trade unions. And then - there was action. A group of former Rover executives were backed by an odd coalition of interest to put together their own bid. Much of the cash came from rich franchise dealerships, with more from companies involved in supplying the plant, and quite a bit from the unions and their members. On the way, some of BMW's claims about Rover inefficiency turned sour - after all, if BMW's management were so great, surely they would have been able to know how many unsold cars they had in stock? But the potential buyers found themselves forced to buy satellite photos from Russia to discover how much inventory was parked on the two and a half mile runway of Bruntingthorpe airfield, depreciating peacefully in the wet winter. Armed with a figure for the car mountain, they finally raised the rest of the funding from a provincial US bank. There was a gap in the plan of around £10 million, but in the end the state coughed up.

Under the final agreement, the New Mini tooling would be handed over to BMW's ex-Rover plant at Cowley, the Rover 75 tooling going the other way. The car pile would be handed over to the North Carolinan bankers in return for working capital. BMW would lend some £425 million to the new firm at a zero interest rate. Many people thought it would never work, but the first few sets of figures were encouraging. An arbitration resulted in the Powertrain plant also being handed to Rover, which gave them the capability to build whole cars. There was talk of joint ventures with other car makers to develop a new range. You'd have doubted that Towers would ever have got on my shit list back then. But, so far, none of the foreign deals have worked. The new cars have not happened, but something else has.

That something else recently got Towers called by a name which has iconic status in British language - the unacceptable face of capitalism. The phrase was first used by Prime Minister Edward Heath, speaking of Lonrho mining boss Tiny Rowland. The next man to be the unacceptable face was Robert Maxwell, not long before his death. It is a serious thing to say, even if the man to say it was the head of BMW in Britain, who might not be entirely neutral. Towers and the four others who became the new firm's directors have gripped the headlines by organising a trust fund for their benefit that receives substantial sums of money from the firm. But it's not only that. They also gave the firm a new and bizarre corporate structure. Their own holding company (Techtronic), the final owner of the whole firm, owns the various business units. So far, so straightforward. They include the group's property assets, its brand, a luxurious country-house conference centre, the profitable Midlands Powertrain and parts units, and a financial unit that owns the portfolio of loans offered to customers who bought on credit. They also, though, include a shell company that owns their controlling stake in MG-Rover Group, the actual car manufacturer.

They don't own the whole of MG Rover Group though. Remember the employees who bought shares back at the time of the firm's rescue? They own the remaining minority. But they don't have Techtronic shares, and hence no interests in the totality of the group. Their shares are in MG Rover Group - that is, Rover less its more profitable assets. Another interesting fact is that BMW loan. The loan was made, free of interest, to Techtronic. Techtronic disburses it as required to MG Rover. But Techtronic charges MG Rover interest on it, interest that presumably benefits only the Techtronic shareholders. The comedian Tony Hancock, according to my dad, once portrayed a con-man who started a company with his straight-man. He explains to the mark that there are two classes of shares, A and B. The dupe opts for the A's and Hancock's character gleefully accepts the B's. The sting? The A shares entitle you to put money into the company, but only the B's let you take it out.

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