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27 March 2000

The great Rover disaster

Geoffrey Robinsonargues that the failure at Longbridge was mainly BMW's, but wonders if the governme

By Geoffrey Robinson

The last time I discussed BMW at length was on Remembrance Day, 11 November 1998. As Paymaster General, I met Peter Mandelson, then the Secretary of State for Trade and Industry, in his office at the DTI. I had been pushing for the meeting for several weeks.

It had been public knowledge for some time that the situation at Rover was seriously deteriorating. The worse things got, the higher the price tag for necessary government support seemed to rise. From well-informed press reports, we were looking at a requirement of £250 million in regional aid.

The ostensible purpose for my meeting was to avoid the Treasury being squeezed by a DTI/No 10 pincer movement into unconditional financial support. But beyond that, I was deeply concerned that the DTI was too laid-back about the situation. There seemed to be an inadequate sense of urgency in the department. I confided my thoughts to the private office at No 10, which shared them and agreed that I should draft a letter for Mandelson to send to BMW. The letter was the basis of the meeting. It made the following observations:

– that BMW had given undertakings to the DTI about maintaining the Rover marque and the present size of its activities;

– that the DTI should insist that BMW hold to the undertakings;

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– that the UK government would be prepared to make maximum support available; provided

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– that, most importantly, BMW committed itself to a much deeper level of involvement in running the company to improve the productivity and quality standards that were so clearly at the root of Rover’s problems.

The DTI officials were somewhat put out by the tone of the letter, which might have been considered a touch admonitory for their liking. But I was sure it was right to be concerned and to do everything possible to get BMW more deeply involved. The meeting ended on a positive note. We agreed that the two departments would work together. I even volunteered to visit BMW together with Lord (David) Simon, then also a Treasury minister, whose good personal relationship with Bernd Pischetsrieder, then BMW’s executive chairman, might have been exploited to good effect.

This last idea seemed apposite to me in the light of the blazing public row that was raging between the top brass at BMW, with Pischetsrieder pro-Rover and Wolfgang Reitzle, another top director, anti-Rover. The visit did not take place. Mandelson and I went our separate ways a month later; and in a violent pas de deux, Pischetsrieder and Reitzle went their separate ways, too, exiting the BMW stage hot on our heals. Their departure resolved their personal stand-off, but did nothing to solve the ills of their “English Patient”, as Rover had become known at BMW.

BMW has now declared its patient terminally sick and has cut off the life-support machine. Its declared reasons do not stand up; the exchange rate was first mentioned as the problem in an interview on the Today programme given by a Rover spokesman in mid-1998. Gordon Brown moved quickly to shoot it down, declaring the problem to be Rover’s low productivity. Without wishing to belittle the difficulties caused to British manufacturers by sterling’s present level, I think the Chancellor had more than a point.

The pound, in fact, is worth no more today than it was in 1986; it is the Deutschmark/euro that has gone down by 29 per cent. But BMW can hardly be a stranger to an appreciating currency. Between 1967 and 1986, the Deutschmark revalued by 250 per cent against sterling. Over that period, BMW learnt to cope by improving quality and productivity.

On the issue of productivity, the Chancellor was certainly right. There are two organisations that look at competitive productivity levels for the international motor industry. The most recent figures I saw from the study based at the Massachussetts Institute of Technology did not make happy reading for European companies as a whole. The Japanese and American manufacturers outperformed them across the board. But, within Europe, the worst performer – by a margin of about 40 per cent – was Rover. The same story was told of quality, where again Rover was ranked by authoritative experts as being right at the bottom.

I can accept that BMW may have inherited these problems when it took over Rover from British Aerospace back in January 1994. BAe recognised that it lacked professional management skills in the motor industry, and that was a main reason why it disposed of Rover. But after six years of BMW ownership, how could this still be the case?

By way of answer, some of our press, notably leader writers at the Observer, seem to be stuck in their own time warp: Britain is no good at making things, especially motor cars. That twaddle does not wash.

The Nissan plant in Sunderland is right at the top of the European league in productivity and quality. Ah, but that was a greenfield site, I can hear them object. Very well then, consider how Ford tackled Jaguar, even though it, like BMW, paid too high a purchase price. When Ford’s Bill Hayden (to whom Britain owes an under-recognised debt) saw the Jaguar factory for the first time after Ford’s acquisition, he observed that there was nothing wrong with it that a good bulldozer would not put right. But thanks to Hayden’s sheer professional management as Jaguar’s chairman and chief executive from 1990 to 1992, and to the equally good work of his successor Nick Scheele, Ford put Jaguar right. With a sustained commitment of management and technical support, as well as money, Ford sorted out the old Jaguar factory at Brown’s Lane, launched the brilliantly successful S-type at Castle Bromwich in Birmingham and is about to bring out the new baby Jaguar at Ellesmere Port, Liverpool. The effect? Jaguar will be tripling sales and is making good profits.

So if the exchange rate argument does not stand up, and if other automobile companies have successfully invested in the UK, what went wrong with BMW? The argument that BMW was put off by the Competition Commission inquiry and by ministerial talk of “rip-off Britain” cannot be advanced with any level of seriousness. (One might ask, though, how much profit BMW made on its exports of 71,000 vehicles to this country last year – there is always another side to the exchange rate equation.)

The bottom line must read that BMW grossly underestimated the size of the problem it had taken on, and never really put in the management resources to cope. Perhaps it was not able to do so: it is, after all, only a medium-sized German manufacturer. Perhaps there was an industrial aliteracy in the BMW management, which simply did not have the scale of operation or resources that Ford can bring. With hindsight, it would surely have been preferable to have allowed Ford to proceed with the acquisition of Rover in 1986 or to have left in place the successful Rover Honda co-operation and shareholding arrangements that were gazumped by BMW.

But that is all history now. What are the lessons for the future? There will be little gained from beating BMW over the head. Certainly, the company seems to have behaved with breathtaking impudence, not to say downright deceit. Stephen Byers, Mandelson’s successor at the DTI, had every right to feel let down. But the arrangements and conditions with BMW should have been more tightly tied down from day one, or not entered into at all. The danger is to pretend to a measure of control where, when the chips are down, you have not a fragment of influence. Governments cannot put their trust in a private sector company’s goodwill alone. Business situations change; managements and their attitudes are bound to change with them. If arrangements are not based on a written contract, forget it.

Next: this episode does not enhance the case either for or against sterling’s early entry into the euro. An early entry into Economic Monetary Union, when the economic preconditions (notably convergence) for successful monetary integration do not exist, would be to court a disaster against which the Exchange Rate Mechanism fiasco would pale into insignificance. A devaluation of as much as 30 per cent might be needed and interest rates would have to be nearly halved. Inflation would go rip-roaring through the economy.

Moreover, global companies do not make long-term investment plans according to short-term currency movements. The exchange rate is not a factor in Ford’s present, very serious, debate about the future of car assembly at Dagenham. As ever, the decisive issues will be productivity, quality and security of meeting production targets. The problem is excess assembly capacity throughout Europe. A very senior Ford executive remarked to me at the launch of the S-type at Castle Bromwich that there was one assembly plant too many in Britain. It was a scarcely veiled reference to Longbridge.

With Longbridge gone, there is a real danger that Dagenham will follow suit. Not one assembly plant too many, but two. Both in Britain. The last major Ford engine plant investment went to Valencia, not Bridgend. There are apparently no closures planned in mainland Europe. On the contrary, Cologne stands to benefit – as it recently did (though few people noticed) when Ford moved its European marketing headquarters there from Britain.

If, as I fear, car-making is a lost cause at Longbridge, then the government should urgently engage with Ford at the highest level. At Jaguar, Ford has maintained that it can be competitive in Britain if the commitment is made.

Has anyone been speaking regularly, if at all, over the past year to Jacques Nassar, Ford’s chief executive, and to Nick Scheele, its senior vice-president in Europe?

Open markets and competition are fine. Cannot we add in a streak of mercantilism, while there is still time? Many people fear it may also be too late for Dagenham.

The writer, a former chief executive of Jaguar Cars, is Labour MP for Coventry North West and chairman of the “New Statesman”