Critics have been predicting Rover's demise even before recent events in China, but the last mainstream British carmaker can't be written off just yet, writes David Gow.
The knives are still out for MG Rover. Thirty months after a consortium of west Midlands businessmen, known as Phoenix, bought the stricken car company for a nominal £10 (€16) from BMW, there have been constant predictions about its imminent demise.
Now the vultures are back. Admittedly leaner, they are circling over Rover's headquarters in Longbridge on the outskirts of Birmingham.
The company's losses on its core automotive operations last year were substantially higher - at £227 million (€357 million) rather than the declared £187 million (€294 million) - amid fresh concern over the transparency of its accounts.
Even so, boardroom salaries went up more than 40 per cent, hardly a reassuring signal to its 6,500 employees.
Then, last week, shares in China Brilliance, its partner in developing the make-or-break medium-sized car due to enter European showrooms in the summer of 2004, and, maybe, a smaller car to go on sale a year later, were suspended in Hong Kong amid reports of a partial takeover by the Beijing government.
This is the latest episode in a saga involving Brilliance's former chairman, Yang Rong, who was ousted in June after suggestions that he was under investigation for an alleged role in asset-stripping at China's biggest van-maker. Yang, who has supposedly fled to the US, denies the charges.
For Rover's critics it was proof that the long-awaited new medium-sized car, replacing the repeatedly revamped 45 and the key to restored profitability, was doomed. For the company and its supporters it was a mere sideshow - involving an entirely different offshoot of the sprawling Chinese group.
There are grounds for believing that privately-owned Rover, chaired by John Towers, a former BL boss, and run by Kevin Howe, chief executive, will see off its doom-mongering critics - at least in the medium-term. It may even begin to make money when the new car is launched.
But, equally, Rover can take some of the blame for the renewed doubts about its future. Howe and his colleagues appear to have spent more time on talking up external issues rather than on the core business of building and selling cars that people want to drive.
First, they invested a huge amount of human capital in promoting the Chinese partnership they are now dismissing as tangential at best. Second, they went back into motor sports, trumpeting the forgotten Le Mans endurance race, and bought an Italian sports carmaker, Qvale, amid feverish talk of rivalling Porsche or even Ferrari.
Then, they embarked on a venture to buy a disused Daewoo car plant in Poland that General Motors, rescuers of the bankrupt Korean group, did not want. And now there is the prospect of a deal with Indian car group Tata to build a new "super-mini" to replace the 25 model.
At last month's Birmingham motor show Howe's main role was to launch special edition MG cars endorsed by Atomic Kitten and, above all, the monstrously powerful MG XPower SV, the sports coupe capable of 220 mph, costing up to £100,000.
AN enraptured Howe spoke of the sports car providing a "halo effect" for the MG brand, driving up overall sales even though he expects to sell only a few hundred of the XPower SV itself.
The tourer concept vehicle, a full-size precursor of the new medium-sized car (first displayed in Geneva in March), received merely a glance at the side of the stand even though it is the key to the group's future.
For its critics, this razzmatazz around "concept" vehicles and foreign forays are designed to hide Rover's declining sales in its core markets of Britain and mainland Europe. In its home market, its share fell to 3.13 per cent last month and, so far this year, is 3.77 per cent with 84,669 sales - compared with 83,167 in the same period of 2001.
Tony Woodley, chief union negotiator and a central player in Rover's rescue by Phoenix, thinks the figures are disastrously low in a year when overall British car sales are set to hit a record 2.54 million.
Last year Rover sold 170,200 cars compared with a planned 180,000 to 200,000 and admits it will sell fewer this year. At this rate BMW, its former owner which once entertained hopes of selling 500,000 Rovers a year, will sell more Minis next year than Rover's entire fleet.
Rover's riposte is that it is not a slave to volume. "I could easily sell the cars in Europe but the margins are so difficult you are lucky to find anyone making any money," said Howe. "We're not in the business of chasing volume but the bottom line. We've chosen not to push for volume at the expense of a deteriorating financial performance."
A former BMW executive, taking his hat off to Rover's surprising survival as he sees it, says the company was losing over €3,000 on every Rover car or €3.1 million a day when it pulled out - entirely because of the strong pound.
Howe, faced with sterling at €1.59, wants the rate down to below €1.50 and preferably closer to €1.40.
Ironically, lower sales in mainland Europe are helping Rover's bottom line this year when Howe expects the losses to be in the tens of millions - compared with £1.2 billion in 1999, BMW's last full year of ownership, €600 million in 2000 and €280 million in 2001.
PROFESSOR Garel Rhys, of Cardiff business school's centre for automotive research, calculates the company is about nine months behind schedule. "It's very, very hopeful. It's a holding operation until the new models arrive. They're trying to get the company out of loss and into profit but the real growth has to be on the back of the new vehicles," he says.
He shares Rover's view that the problems at China Brilliance, should have little impact on the company's future.
"It doesn't alter the fundamentals which is the five-year recovery plan," Prof Rhys, a company confidant, says.
He insists the group has at least a viable medium-term future. "It's very difficult for a company selling less than 250,000 to be independent as BMW and Mercedes have shown.
"But, if the new car succeeds, that could make Rover very, very attractive to someone else and that sets alarm bells ringing in the west Midlands... You do need to find that relationship with someone to give you volume."
The former industry executive is not entirely convinced: "When BMW exited Rover it was said they needed three things: British people to buy the cars, a partner, and sterling to fall against the euro; and none of those is a given."
Ultimately, he imagines Rover losing out in the prolonged deflationary price war to its much bigger rivals but, perhaps, surviving as a niche player, making sports cars - which was the vision of Jon Moulton of Alchemy, the bidder which lost out to Phoenix.
Then again, if Rover's brilliant design and development team can produce a winner in 2004, in or out of China, the vultures over Longbridge will continue going hungry. "Look, Rover has survived everything else over the last 25 years,there's a survival culture at Longbridge," the ex-insider says.
- Guardian News Servive