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W ho Killed M G ?

A Special Report from the Cambridge-MIT Institute’s Centre for Competitiveness and Innovation (CCI), University of Cambridge ______

Matthias Holweg and Nick Oliver Centre for Competitiveness and Innovation Judge Institute of M anagement University of Cambridge Trumpington Street, Cambridge CB2 1AG, UK Tel: +44 (0) 1223 339 700 Email: innovation@ jims.cam.ac.uk www-innovation.jims.cam.ac.uk

25 April 2005

Contacts: Matthias Holweg, 01223 760583, m.holweg@ jims.cam.ac.uk Nick Oliver, 01223 338179, n.oliver@ jims.cam.ac.uk Judy Swan, CCI Manager 01223 339603, j.swan@ jims.cam.ac.uk Alex Balkwill, CCI Administrator 01223 760582, a.balkwill@ jims.cam.ac.uk

W ho Killed M G Rover?

Summary

This paper investigates the final collapse of MG Rover in April 2005, and addresses two main questions. First, what were the reasons for the final collapse, and was this avoidable? Second, who or what was responsible for the circumstances that put MG Rover in such a precarious position, and what critical choices sealed the fate of Rover?

W e assess whether the end of Rover was inevitable and identify the critical junctures at which the tide could have taken a different course. W e conclude that by the time the Phoenix consortium took over, the fate of Rover was largely sealed. The company’s collapse was a culmination of a process that started more than five decades ago that included: a failure to consolidate previously independent companies quickly enough; a persistent inability to develop products that hit the right markets at the right prices; the unfortunate severance with ; and BMW ’s inability to address Rover’s underlying weaknesses. W hen Phoenix took over, the ship was sinking; the only question was how long it would continue to remain afloat. In the end, Rover was forced to consume its own capital in order to stem its operating losses.

Despite MG Rover’s collapse, it should be remembered that parts of the former such as , Jaguar and do live on – though no longer under the mantle of British ownership.

M atthias Holweg, M.Sc. Ph.D., is a Lecturer in Operations Management at the Judge Institute of Management, University of Cambridge, and a principal investigator of MIT’s International Motor Vehicle Program (IMVP). His research focuses on supply chain management strategies in the , in particular focussing on order fulfilment strategies and responsive manufacturing systems.

Nick Oliver, M.A. Ph.D., is a Professor at the Judge Institute of Management, University of Cambridge, and co-director of the Cambridge-MIT Institute’s Centre for Competitiveness and Innovation. His research interests are high performance manufacturing and the new product development process, with a particular reference to the motor industry.

1 Introduction

MG Rover, the last UK-owned volume manufacturer, passed into administration on 8 April 2005. W ithin days, 5,100 of the 6,000 workers at , the company’s last remaining assembly plant, were issued with redundancy notices. Rover collapsed after a possible £1.2 billion deal with the Shanghai Automotive Industry Corporation (SAIC) fell through. Almost immediately there were allegations of mismanagement and dubious financial deals by Phoenix Holdings, MG Rover’s owners since 2000. In this report, we seek to address two main questions: W hat are the reasons for the collapse of MG Rover, and who (or what) was responsible for Rover’s terminal decline? To answer these questions we examine four interpretations of Rover’s collapse. These are:

° Rover’s lack of economies of scale, which made the company too small to compete globally in an industry where economies of scale are crucial.

° Rover’s inability to develop models that were able to be sold at sufficient levels of price and volume, aggravated by lack of consistency of brand and purpose. Even if Rover had had better models, would it have been able to command the levels of price and sales that they deserved?

° Inadequate manufacturing capability, so that even if Rover’s models had been competitive it lacked the ability to make them to an adequate standard.

° Rover was a viable business that failed due to incompetence or malpractice.

W e first provide a brief history of Rover, and then move on to look at the reasons behind the company’s demise. W hat is clear from this analysis is that the seeds of destruction were sown decades ago, although there were key junctures where a very different outcome may have resulted had different choices been made.

2 A Brief History of Rover

Rover’s history has three main phases. These phases follow the classic product or technology life cycle identified by authors such as Utterback (1994). The first phase was roughly 1900-1950. During this period, what is now MG Rover was actually a multitude of independent companies – Alvis, Austin, Morris, Rover, Riley, Triumph, W olseley and others.

3 Like most sectors, the auto industry followed the classic technology life cycle exhibiting many new entrants, and competition between different designs and technologies, in the early years of its life, namely the late 1800s and early 1900s. Following the invention of a new product or technology, new entrants proliferate as companies are formed, or existing ones bid to enter the new area, all eager to get a foothold in the developing market. This is sometimes known as the ‘era of ferment’. Often these hopefuls compete on different base designs or technologies, but over time a dominant design usually emerges (four wheels, front , steel body in the case of ). There then follows a period of consolidation as firms who backed the wrong designs or technologies go to the wall or withdraw from the market. Issues of production efficiency, product quality, and the ability to bring appropriate new and updated products to market in a systematic way then typically become critical success factors. Depending on issues such as the scale, variety and complexity of markets and/or technology, only a fraction of those who initially enter a market will remain there. This is graphically illustrated in the auto industry, where in early part of the 20th century there were hundreds of producers (W omack, Jones and Roos 1990), but by the end of the century there were less than 20 players with a significant global presence, several of these trading under multiple brands. This consolidation was well advanced by the Second W orld W ar, but continued throughout the century. In the US, for example, the number of independent firms declined from 10 in 1950 (with 86% of production going to the ‘Big Three’: GM, Ford and ) to five in 1960 (91% of production to the Big Three); four in 1970 (97% to the Three), until by 1990 only the Big Three remained.

MG Rover’s history reflects this pattern. From 1950 to 1970 there were successive mergers and attempts at consolidation as efforts were made to build a British automotive company capable of holding its own in the world in the image of the lines of US multinationals, with Ford in particular serving as a model. In Rover’s case, this took the form of a cycle of integration into a large entity comprising of the majority of British car manufacturers under a single umbrella, first called the British Motor Corporation (BMC) and then the Motor Corporation (BLMC). This consolidation occurred over a period of nearly 20 years and was complete by the early . However, it endured for scarcely a decade, after which there was a gradual disintegration, in which key brands were split off, privatised or sold to other car companies. Appendix A presents a detailed chart of Rover’s ‘family tree’ showing this process.

4 Thus, the Rover car company has not one, but many different starting points. Rover itself was established in 1877/8, in parallel to other makers such as Triumph, Austin and Morris, all of which were established between 1885 and 1915. The first ‘Rover’ was a tricycle manufactured by Starley & Sutton Co. of , in 1883. In the late 1890s the company was renamed the Rover Cycle Company Ltd., and three years after Starley's death in 1901, the began producing automobiles with the two-seater ‘Rover Eight’. and motorcycle production continued until the Great Depression forced the cessation of production in 1925. Automobile production resumed in 1947, following the Second W orld W ar, and the company began producing the Land Rover in 1948.

The did not originally belong to Rover, but to Austin. In 1905, the was formed by Herbert Austin at Longbridge, a former print works in . In 1922, the hugely successful Austin Seven was launched, and by 1946, over a million Sevens had been produced. In 1952, Austin and Morris joined forces, and formed the British Motor Corporation (BMC), the idea being to create a British car manufacturer to rival Ford. The merger was largely forced upon the two companies by the British Government, amidst considerable dissent and animosity between Austin at Cowley and Morris at Longbridge. This rivalry impeded efforts to build a single company to match Ford, and as we shall see, lingered on for many years. However, BMC pioneered a number of enormously influential innovations, such as, in 1959, the Mini. This was launched by Austin and designed by , who had also designed the . The Mini was the first car to combine front-wheel drive and a transversely mounted engine using continuous velocity joints in the drivetrain. This breakthrough subsequently became the industry standard in layout for small to medium sized vehicles. In 1965, the millionth Mini was produced, and the Mini was to stay in production for over 40 years. Commercial success, however, was more elusive; relatively high costs and a low selling price meant that the margins on the Mini were wafer thin, and at some points, negative.

For Rover, not yet part of BMC, the 1950s and 1960s were also fruitful years, with the success of Land Rover. The P6 (Rover 2000/2200/3500) saloons did well, and the premium vehicles in this range were equipped with a small aluminium V-8 engine, the design and tooling of which was purchased from . Rover also conducted pioneering research into fuelled vehicles. In 1967, Rover became part of the Leyland Motor Company, marking the end for Rover as an independent company. A radical programme of cutbacks in the late 1970s led to the end of car production at the factory, which was turned over

5 for Land Rover production only. After this time, all Rover cars (apart from Land Rovers) were made in the former Austin and Morris plants in Longbridge and Cowley, respectively.

In 1966, BMC merged with Jaguar to form (BMH), and with encouragement from Harold W ilson’s Labour government, in 1968 BMH and , the owner of Rover, merged to form the British Leyland Motor Corporation (BLMC). The combined company enjoyed production volumes of close to one million units in the early 1970s, but struggled to integrate its operations across the different constituent companies. Consolidation occurred, but the integration upon which the success of the consolidation depended, did not.

W ith worsening finances, BLMC was nationalised in 1975 and renamed British Leyland (BL). It received a £2000 million government cash injection to modernize its plants and its products. Michael Edwardes was brought in to steer the company forward and the company joined forces with Japanese rival Honda in 1979, as it became clear that the company was incapable of developing new models on its own. In 1979 Honda signed a collaboration agreement, and granted Rover the right to produce one of its models, sold as the . Honda took a 20% stake in Rover, and agreed that Rover should produce some Honda vehicles in the UK on Honda’s behalf.

In 1982, there was another name-change; British Leyland became Austin Rover. The Rover badge was used on a range of cars co-developed with Honda: the first Honda-sourced model, released in 1984, was the Rover 200, which, like the Triumph Acclaim that it replaced, was based on the Honda Ballade. In 1986, the Rover SD1 (2000/2600/3500) was replaced by the Rover 800, which was based on the . In 1987, Austin Rover adopted a one-brand strategy and renamed itself again, this time as the ‘Rover Group’. The Austin Maestro and Montego, now badged as Rovers, were replaced by the Rover 400 and Rover 600, based on Honda's Civic and Accord platforms.

In 1986 Graham Day became head of Austin Rover, and the company was sold to (BAe) in 1988. It remained under BAe’s ownership for six years, until in 1994 BAe abruptly put Rover up for sale as part of an effort to focus effort on their core aerospace business; Rover was sold to BMW . Shortly before the deal was closed, strenuous attempts were made to convince Honda to increase its stake from 20% and take over Rover, but Honda refused to do this. Even on the morning when the deal with BMW was due to be closed, Rover executives were in Tokyo trying to persuade Honda to take on Rover, but

6 Honda would not offer to increase its the share to more than 47.5%. This was not sufficient for BAe, and so Rover passed to BMW for £800 million. BMW invested considerably in Rover, in particular the development of the .

Six years on, in May 2000, after two consecutive years of heavy losses and the failure to secure sufficient government subsidies for the R30 project (the replacement for the mid- range 25 and 45 models) BMW broke up the business, and Rover was sold. One of the would-be buyers was a group of venture capitalists, Alchemy Partners, but there was widespread resistance to Alchemy in favour of the Phoenix Group, headed by former Rover CEO John Towers, who had left the company after the takeover by BMW . Alchemy had proposed to convert Rover into a low-scale company, focussing on MG-branded sports cars, a concept initially favoured by the government, but abandoned after workers’ protests in London. Subsequently, the Phoenix offer was supported. Phoenix bought Rover for £10 and pledged to keep all employees in work, aiming to return a profit within two years. Renamed to MG Rover, the company receives a 49-year loan of £470m by BMW and the licence to the Rover brand.

At the same time, BMW sold Land Rover to Ford for £185m, including the R&D facility and the . BMW retained the model and production of the new Mini, launched in 2001, which was based at Cowley, near . As a result, the Rover 75 production was moved to Longbridge, where Rover now produced the 25, 45, and 75, while being deprived of two of its key brands (Mini and Land Rover), and having lost most of its R&D capability due to the sale of Gaydon.

From 2000 onwards the MG Rover decline continued. In 2001, 8-month operating losses of £254m were reported, although these marked an improvement on recent performance. Amidst the acquisition of the Italian sportscar maker (which led to the SV sportscar, of which a total of 25 were sold by April 2005), the company announced an alliance with the Chinese group Brilliance, to help fund investment in new models. This deal was not completed, despite an initial cash injection by the Chinese company. In 2003 there were losses of £77m, thereby missing the profitability target set in 2000, while production figures also fell again. In an effort to raise cash, the Longbridge plant was sold for £45 million, and leased back. In November 2004 a plan for a £1bn with the Shanghai Automotive Industrial Corporation was announced, and the rights for the 25, 75 models and the K-series were sold to SAIC for £67m.

7 By March 2005 sales had continued to fall, and suppliers were starting to demand cash payment upon delivery of components. A rescue mission to save the SAIC deal in April 2005 failed, although a bridging loan of £100m by the British Government was offered, and some suppliers stopped their deliveries of components. On 15 April 2005, all 5,100 Longbridge workers faced redundancy after production was halted at Longbridge. A century of car production at Longbridge had ended. W hy?

3 W as Rover too Small to Survive?

The short answer to this question is that in its latter years Rover certainly did lack the scale to compete in the volume segment of the global car market. As shown in Appendix B, the five largest global producers (, -Audi Group (VAG), GM, - and Ford) all produced in excess of 3 million vehicles in 2003, and output of those in the next tier (e.g. PSA, Honda, Hyundai-Kia and Daimler-Chrysler) sits at around 2 million units a year - and some commentators even question the viability of some of these second tier companies to survive as independents in the long term. In contrast, Rover’s output last year was only 107,000 units, pitifully small by comparison.

Production volume is important in the auto industry due to the high investment needed in order to engineer and manufacture cars (a rough estimate is $1bn for the development of a new model), which means that these costs must be spread over as large a number of vehicles as possible. Product development and tool manufacturing (the dies for the large metal pressings: floor, sides, doors, bonnets etc.) are particularly expensive and hence require scale economies. Appendix C gives an overview of the minimum economies of scale for different operations (such as machining, assembly and so on) in the auto industry. Note that the minimum scale for an individual assembly plant is around 200,000-250,000 units per annum – and of course, most car makers operate several assembly plants.

W hat does this mean for Rover? Reviewing production volumes at Longbridge, Cowley and Solihull, and later only Longbridge (following the sale of Land Rover and the Solihull assembly plant to Ford in 2000, and the retention of the new Mini and the Cowley assembly plant by BMW ) it is apparent that Rover comes nowhere near to realizing such economies in recent years, as shown in Appendix D. If one assumes the minimum economy of scale of 200,000 annual units for an assembly plant, Rover dropped below this threshold in

8 2000, and production further dropped to 107,000 units in 2004 – a level at which volume car production is unsustainable. Rover’s declining output is shown graphically in Figure 1.

Rover Group / MG Rover, Mini and Land Rover Production 1984-2004 (in units) 500,000

400,000

300,000

200,000

100,000

0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Rover Group (up to 2000) MG Rover (post-2000 configuration) Mini Land Rover

Figure 1: BL/Rover Production Volumes 1984-2004

Table 1: Product Range and W estern European Production by Platform, 2000-2004

Average Production Total Number Total Number of per Platform per of M odels Platforms annum MG Rover 6 5 28,984 VW Group 32 17 161,940 Ford 37 21 98,924

One strategy used by the vehicle manufacturers to deal with the need for economies of scale on the one hand but restrictions on the size of the market on the other is to employ common ‘platforms’. W hat this means is that key components such as the floor pan, suspension and powertrain are shared across several models – essentially, different bodystyles

9 residing on the same platform. This means that platforms, which are expensive to develop, can enjoy economies of scale, while different body styles and features serve different niches. Table 1 compares the average number of platforms, and the average production volume per platform, of Rover, Ford and Volkswagen-Audi.

Table 1 shows the truly dire position in which Rover found itself with the production economics of its platforms. During 2000-2004 the company was producing less than 30,000 vehicles per product platform – one third the level of Ford and just 18% the level of Volkswagen-Audi. W ith these figures it was clearly impossible for Rover to fund the development of new models that would have arrested its plummeting sales.

Table 2: Production and Headcount at BM C/BLM C/BL/Rover. Updated from W illiams et al. (1994).

Year Vehicles Produced in ‘000 Number of units Employees 1955 439.6 60,000

1960 601.4 79,000 1965 845.6 120,000 1970 961.7 199,524

1975 738.2 191,467 1980 585.0 157,000 1985 555.5 78,000

1990 500.5 41,900 1995 350.4 N/A 2000 178.9 32,000 2004 107.6 5,100

Table 2 outlines the evolution of Rover’s production volume and headcount from 1955 onwards, and it is obvious that the loss of scale economies was not a problem that began when BMW disposed of Rover, but in fact has been a consistent trend since 1970. The root cause for this evolution, persistent market failure, is the subject to which we now turn.

10

4 Persistent M arket Failure

Press coverage at the time of the Rover collapse, quite correctly, made much of the deficiencies in the company’s line of products, particularly the age of its models. However, what is clear from a historical analysis is that shortfalls in this area are not new for the company. The last volume products to be developed by BL/Rover itself, Metro, Maestro and Montego, date back to the early 1980s. After this the company was more or less dependent on external resources, first from Honda and then BMW for any serious product development, with the exception of Land Rover products and arguably the Rover 75. To make matters worse, the most significant development capability that remained was lost Ford when Land Rover was sold to Ford in 2000.

How did Rover get into this state? W hy did it lose the capacity to develop new models that were competitive in the market place? And why did generous inputs of cash intended to stimulate product-led recovery fail to achieve the desired results?

Even as early as the late 1940s and early 1950s the fault-lines that led to product development failure were becoming apparent. W riting about the early years of the BMC, created from the merger of Austin and Morris in 1952, W illiams et al (1994) note that the key to BMC’s strategy of growth was essentially to defend its existing share of the growing domestic market, in which it held a share of nearly 40%. However, product development was based on “Intuition and experience rather than formal market analysis or forecasting techniques” (W illiams et al 1994, p137). Tiratsoo (1995) paints a similar picture of decision- making at Standard Motors, who were later taken over by Leyland. Tiratsoo writes:

“Few companies, especially in export markets, used any kind of market research to gauge the contours of demand. Instead, most depended in relations to this issue, (as with so many others) on the ‘feel’ of the leading executive” (Tiratsoo 1995, p98). In Standard’s case, the Managing Director, John Black, was a forceful individual, but untrained in either design or engineering. He trusted his own experience and knowledge, and was reluctant to listen to advice from specialists, especially if this did not accord with his own instincts.

This is not to say that the picture was all gloom for BMC during the 1950s. W ith the post-war boom, the domestic market was expanding, albeit with cyclical down turns, and BMC had a big share of this. Neither was there a particular problem with the efficiency of

11 production, nor in a technical sense, with product design. Indeed the company pioneered a number of major innovations in the volume cars market, including the now ubiquitous front (i.e. the engine sitting perpendicular to the driving direction), front wheel drive, and ‘space-saver’ design, which was embodied first in the Mini and than the 1100/1300 range. However, the company’s historical problem of aligning product to market persisted. The Austin-Rover unofficial website, commenting on the slapdash approach to the pricing of the Mini, reports:

“’s famous quote that, “if you build bloody good cars, they’ll sell themselves.” was certainly the case with the Mini and the 1100, both being excellent products, but the downside of this was that [BMC] made a disastrous error in pricing the Mini too low. This marketing ineptitude resulted in the basic Mini costing £496, which not only was the same price as the Ford 100E Popular, but £100 cheaper than the new 105E Anglia. W hen Ford’s costing engineers stripped down the Mini in order to work out how on earth BMC could sell it so cheaply, they estimated that BMC were actually making a loss of £30 on each one built.”

W ith further mergers and the creation of the British Leyland Motor Corporation in 1968, the company was the fourth largest car maker in the world, making over a million vehicles a year and employing 175,000 people (W illiams et al., 1994). But these figures hide an underlying weakness that, nearly 40 years later, was to kill the company. Although apparently having the scale to be a global player and the capability to, at least occasionally, produce mould-breaking models, the company was unable to attain the combination of sales volumes and prices necessary to generate the cash essential for model renewal and factory re- equipment.

“By the mid 1960s BMC could carry on doing what it was already doing but had no long term future” (W illiams et al., 1994, p147)

There were a number of reasons for, some internal to the company, some exogenous. W hat is clear is that whilst the many auto companies were consolidating and integrating at this time, the companies who were coming together under the BMC/BLMC umbrella may have been consolidating on paper but were not integrating in practice. Over time, the consequences of this failure to integrate became more and more apparent, and the case of BMC stands in stark contrast to say, Volkswagen-Audi, who went through a similar process

12 but with very different results. An ex-British Leyland executive, who we interviewed in 2000, described the situation in the early 1970s thus:

“Each of these companies had its own way of doing things and its own attitude. Even though Austin and Morris had been together in a company for some years, the people at Longbridge would see themselves as "The Austin" and the people at Cowley would be "The Morris". "The" was the normal way of describing themselves. And they certainly didn't like one another. They probably didn't meet, but they certainly thought that the other companies were not really very good. The same thing applied to Rover and Triumph and Jaguar… Triumph produced a car which was a competitor to say, Rover, which was a competitor to some of the Austin ones, that sort of thing. I had a good deal to do with discussions with these companies. And it really was very difficult to persuade perfectly sensible and reasonable people that the other companies had any virtue at all, or should work together with them. The process of bringing the companies together was a very difficult one. The brands themselves were in those days quite powerful and quite valuable. I remember when we decided to join Rover and Triumph, Triumph directors told me that the way Rover did things was wrong. These were perfectly sensible, reasonable people who knew their own job. And Rover people would say the same thing. Quite extraordinary”.

Basic business systems such as costing methods and financial reporting were not harmonized across the constituent parts until well into the 1970s, or in some cases even later. Thus, even though the need for rationalization may have been recognized by those some of those running the company, the information to do so was not necessarily available, and so, although a large company on paper, BLMC in fact showed many characteristics of a cottage industry. W e have already seen that historically, marketing and pricing were done intuitively, rather than systematically, when the constituent companies were independent. This resulted in products that were not always quite what the market wanted - a particular problem for export markets – or that were priced too low to provide full cost recovery. As the companies merged, this inability to ‘join things up’ led to a chaotic product portfolio, with individual brands duplicating presence and competing with each other in some segments, whilst in other segments there was no presence at all. This served to drive up the cost base of development whilst limiting sales as individual models competed with each other in the same, restricted, market segments. This lack of strategy and control manifested itself in other ways too. At a time when Triumph desperately needed a replacement for its volume model, the , its engineering resources were almost fully occupied developing the , a product that was never going to be anything other than a niche one. The Stag needed an

13 eight-cylinder engine, but rather than borrow the accomplished already used by Rover, Triumph opted to develop its own.

The net result of this was that the company began to run out of cash to develop its own models, forcing all sorts of compromises. For example, the , launched in the early 1970s as a competitor to the Ford Cortina, borrowed various pieces of design and running gear from the elderly Morris Minor. Development capability eroded and limitations on ability to read the market, especially the international market, persisted. In 1975, this crisis led to nationalization, and a big injection of cash into the company to try to secure product- led recovery and to modernize the factories. Reasonably competent new models did come out of this process (Metro, Maestro and Montego), but again sales were disappointing relative to the company’s aspirations, not least because of the absence of a decent European distribution network, which, incredibly, seemed to have been overlooked in the modernization plan (W illiams et al., 1994). Despite the injection, sales were still not generating anyway near enough cash to provide for new model development on an ongoing basis.

By this stage it was clear that the company had to find a partner who could provide designs that could fill the companies gaping hole in product development capability, and the partnership with Honda did just this. The partnership was a good fit. Honda were a relatively small car maker, (BL/Rover were actually larger than Honda when the partnership began) but with very good technology and were looking for quick and relatively low-cost access to the European market. Honda provided Rover with models and platforms of the Ballade, Civic and Accord, the first of which was built and marketed as the Triumph Acclaim and later the Rover 200/400 and 600 series. At last Rover had some good models, and in Honda, a patient and highly competent role model.

In parallel with these developments, the Conservative government under Margaret Thatcher, elected in 1979, was determined to return the company to the private sector and so began a process of unpicking the consolidations of the 1950s and 1960s. Jaguar was privatised in 1984 and then later acquired by Ford in 1989. In 1988, the rest of the company (renamed, again, this time as Austin-Rover) was sold to British Aerospace, with Honda holding a 20% stake. Interestingly, were reputedly interested in buying the company at this time, but there was a public outcry about a national asset falling into foreign ownership and GM retired from the scene.

14 The picture of Rover’s years with Honda was of Honda engineers teaching Rover about Japan’s fabled manufacturing methods, while Rover engineers ‘Roverised’ Honda’s designs to make them more appealing to the European market. In the media, there were stories of the revival in Rover’s fortunes and as Appendix D shows, sales picked up somewhat. This period came to an abrupt end in 1994, when a decision by BAe to focus on its core aerospace business led to Rover being put up for sale. Startled by this move, and perhaps not thinking that after several years of successful partnership BAe would close a deal without extensive consultation, Honda reluctantly offered to raise its stake in Rover to 47.5%. As this represented a minority stake, this was not enough for BAe, who unilaterally sold the company to BMW . Honda exited, and with it went Rover’s development capability in the volume car market.

Quite what went wrong with BMW and Rover is difficult to say. BMW certainly invested substantially in Rover, and in the main cars business (aside from Land Rover), one new model, the 75, was developed and launched, in 1998. This car was well received by the motoring press. However, , BMW ’s CEO was frustrated by Rover’s losses and by the small amount of government money on offer to assist the development of the 200/400 series replacement, the R30 and rather unfortunately chose the Press launch of the Rover 75 to raise questions about Rover’s long term future.

“Using the launch of a vital new product to publicly question the viability of a factory (and one that the new model was not even planned to be built in!) was unprecedented within the industry… . So the newspapers and magazines of the following few days carried stories of ‘Rover in crisis’ rather than ‘Rover’s brilliant new ’”. (Austin Rover W eb Resource, April 2005)

Despite a good response to the 75 by the motoring press, the same old pattern of sales that failed to meet aspirations reappeared. W ith the cancellation of the R30, the highest volume models in the Rover range, the 200/400 series, continued to be built on old Honda platforms. Rover was now in the final act of the drama, with no new models in the pipeline to replace its biggest sellers.

W hat went wrong? It appears that BMW over-estimated Rover’s product development capabilities and therefore underestimated the investment that was required to put the company onto a sustainable footing in the medium to long term. Accustomed to the strength of the BMW brand, they may also have underestimated the weakness of the Rover brand in

15 the market – after multiple consolidations, changes of name and ownership, and a period of very acute, very public, labour relations problems it is not surprising that the car-buying public struggled to understand what the Rover brand stood for.

Rover’s aging model range more or less sealed its fate. Profitable sales are largely confined to the first three to four years of the automotive model life cycle, and two aspects are key: updating the product range frequently, and covering key market segments. Here, Rover had another critical deficiency: it only offered vehicles in those segments that were declining, while not offering any vehicles in the growth segments Mini, Supermini, MPV and SUV (Table 3).

Rover’s ageing product portfolio (see Appendix E for a complete build programme) was increasingly unappealing to the customers. Both the 25 and 45 had received two facelifts over their 11 years of production, yet technically were based on the Civic 1 and Civic 2 platforms, thus competing against the second generation of their sibling, the .

Table 3: UK Sales by Vehicle Segment in %.

Segment 1997 1998 1999 2000 2001 A Mini 0.66 1.06 1.80 2.35 1.90 B Supermini 26.52 25.25 27.02 31.00 31.5 C Lower medium 32.43 33.41 32.02 29.78 30.2 D Upper medium 25.15 24.46 23.35 21.46 20.7 E Executive 5.77 5.51 5.26 4.71 4.50 F Luxury saloon 0.72 0.75 0.56 0.51 0.40 G Specialist sports 2.93 3.04 3.13 3.03 2.70 H Dual purpose 3.76 4.39 4.50 4.47 4.90 I MPV 2.05 2.12 2.35 2.70 3.30 Source: Society of motor Manufacturers and Traders (SMMT)

The 200/25 is even based on the older Civic 1 platform shared with its predecessor that was launched in 1989, since BAe did not let Rover spend more money on the Civic 2 platform. Press reviews of the 25/45 reflected this, and sales fell accordingly. Figure 2 shows the drop in combined registrations for all Rover/MG Rover models from 1990 to 2004.

16 UK Registrations of MG Rover Models,

and MG Rover Market Share MGF 300,000 TOURER 13.62% OTHER 250,000 12.61% 11.59% MONTEGO

m 9.79% MINI

u 200,000 n METRO n

a 7.14%

r MAESTRO

e 150,000 p

CITYROVER

s 5.02% t i 800 SERIES n 3.97% 2.99%

U 100,000 75 600 SERIES 50,000 400/45 200/25 0 100 SERIES 1990 1992 1994 1996 1998 2000 2002 2004

Figure 2: UK Registrations for Rover M odels and M arket Share

The company was now in a fatal dive. MG Rovers’ UK market share fell from 13.4% in 1990, to 10.9% in 1995, to 4.7% in 2000. In the German press Rover was referred to as the ‘English Patient’. BMW decided to cut its losses in 2000, retaining only the Cowley plant to build its new Mini and sold Land Rover to Ford, and Rover to the Phoenix Group. By 2004 Rover’s market share was down to less than 3%. The decline following the sale to Phoenix was further amplified by the fact that Rover lost two specialist segments – the Supermini (B Segment) and Land Rover (SUV), so that by 2000 it was left with an ageing product portfolio in declining segments. Moreover, BMW had introduced more product variety in 1994 (see Appendix F) to try to increase the product appeal. Until then the Rover 200 variety was consistently below 25,000 possible combinations, until BMW ’s takeover and implementation of a revised options policy, which catapulted it to 2 million. Product variety compounded falling sales.

Rover thus lost a complete product development cycle due to the takeover by BMW in 1994, as Honda platforms were no longer available. Although the second-generation 200 model was launched in 1995, its old platform meant it was already at a performance disadvantage when launched. The replacement for the 200/400 range, the R30 platform (which was meant to host the new 35 and 55 models), was never developed due to falling production volumes and BMW ’s exit. Thus, Rover was left with an outdated product range in the 25/45 series, with only one significant new product, the 75 model. Furthermore, Rover

17 was offering cars in segments that were shrinking, and had no line-up for the segments that were growing. In desperation, the was imported to the UK and sold as a Rover, but did not achieve major sales. The company acquired Qvale, an Italian sportscar maker, which led to the development of the niche MG SV. However, the company had no way of responding to the most desperate need, namely a replacement to its mid-range, high volume offerings. In the end, it simply ran out of models.

5 M anufacturing Capability?

For a significant part of Rover’s history, but especially during the late 1970s and early 1980s, many commentators pointed the finger at Rover’s poor productivity and quality as the root cause of many of the company’s problems. At least three major threads were in play at this point under the leadership of Michael Edwards, who became Chairman of the company in 1978. First, the company embarked on a major programme of modernization of products and equipment, based on the £2000 million of government funding that had been put aside following nationalization in 1975 and the Ryder Plan that followed it. Secondly, there was a major programme of plant closures, with assembly plants at Speke, Canley, and Seneffe all shut down and Solihull handed over exclusively to Land Rover production. This is reflected in a rapid fall in headcount, from 86,000 in 1978 to 48,000 in 1984 (W illiams et al., 1994). Third, and at the time the element that received by far the most attention in the media, was a determined attempt by management to assert control of the shopfloor. This largely succeeded, culminating in the dismissal of the high profile union leader Derek Robinson, or "Red Robbo" as he was dubbed by the media. Robinson became synonymous with the strikes which crippled production at the Longbridge plant in the 1970s. Between 1978 and 1979, Mr Robinson, convenor at Longbridge, was involved in 523 industrial disputes at the plant, at the time Britain's largest factory (BBC News Online, 2000).

During this period the dominant interpretation of the company’s problems was that it was failing due to a combination of over-manning (true, given that its ability to sell its vehicles fell consistently short of its capacity to make them) and poor labour discipline which led to both excessive costs and to inadequate product quality. W hilst there was clearly some truth in this - the company was losing around £500 per car between 1979 and 1982 – our analysis so far shows that there was clearly much more to the problem than this. There were fundamental issues with the ability of the company to design, develop and market its vehicles

18 that were, at least initially, more pertinent to the story of decline than were its manufacturing costs. As the Metro, Maestro and Montego came on stream, and even more so as the Honda- designed cars came through, criticisms of Rover’s quality subsided.

Table 4: Percentage of Vehicles that Break Down in the First 9 Years of Life 1996-2003 RANK M ake % Break Downs Years 1-9

1 DAIHATSU 3% 2 MAZDA 6% 2 HONDA 6% 4 TOYOTA 7% 5 KIA 8% 5 PROTON 8% 7 SEAT 9% 7 MG-ROVER 9% 7 NISSAN 9% 10 CHRYSLER 10% 10 SUBARU 10% 10 MITSUBISHI 10% 10 MERCEDES 10% 14 SUZUKI 13% 14 BMW -Mini 13% 16 VOLKSW AGEN 14% 16 HYUNDAI 14% 18 15% 18 15% 18 VAUXHALL 15% 21 16% 21 SAAB 16% 21 JAGUAR 16% 24 SKODA 17% 24 17% 26 FORD 18% 27 ALFA ROMEO 19% 27 19% 27 DAEW OO 19% 30 LAND ROVER 20% 30 RENAULT 20% Source: W hich? Magazine, various issues 1996-2003

Although never the most productive car plant in the world, Longbridge was by no means the worst, and an inability to make the cars competitively does not stack up as a primary explanation for the company’s failure from the mid 1980s onwards. A study of

19 labour productivity in 43 European car plants conducted in 2002 put Rover as 29th in the league table, on 50 cars per employee, against an average of 58 cars per head – on the wrong side of the average, but above a number of Renault, Peugeot, GM and Volkswagen plants with annual cars-per-head figures in the 30-40 range (W orld Markets Research Centre, 2002).

Table 5: Owner Satisfaction 1996-2003 Percentage of Owners who Rank M anufacturer would recommend their car to a friend '96-'03 1 ISUZU 83.6 2 SUBARU 82.3 3 BMW -Mini 79.5 4 TOYOTA 79.2 5 JAGUAR 79.0 6 MERCEDES 78.5 7 AUDI 76.8 8 SKODA 76.8 9 MAZDA 75.5 10 HONDA 74.9 11 NISSAN 71.9 12 SAAB 70.5 13 VOLKSW AGEN 69.9 14 MITSUBISHI 68.3 15 PROTON 68.2 16 VOLVO 66.9 17 SEAT 65.1 18 CHRYSLER 65.0 19 DAIHATSU 64.6 20 ALFA ROMEO 64.5 21 HYUNDAI 63.0 22 KIA 61.0 23 DAEW OO 60.0 24 SUZUKI 59.9 25 PEUGEOT 59.8 26 JEEP 57.3 27 RENAULT 57.0 28 LAND ROVER 55.1 29 FORD 51.8 30 VAUXHALL 50.8 31 CITROEN 50.5 32 FIAT 48.9 32 MG-ROVER 48.9 Source: W hich? Magazine, various issues

20 W ith respect to quality, Tables 4 and 5 show data we have assembled from various W hich? reports of vehicle quality and reliability. Table 4 shows vehicle reliability as the percentage of vehicles breaking down in the first nine years of life. Of the 30 manufacturers on which we have data, Rover is joint 7th, a very respectable position. Of course, on this measure the very attribute that is a problem in market terms, namely the age of the model range, is an advantage in that there has been ample opportunity to iron out problems. This may also be why Rover has relatively few safety recalls, which are most prevalent in models in the first two to three years of the product life cycle (Bates et al., 2004).

However, when one looks at a broader picture of customer satisfaction, measured in this case by the propensity to recommend one’s car to a friend the picture for Rover is much more negative. In the satisfaction league table, Rover is joint 32nd out of 33 manufacturers, sharing last place with FIAT. Less than half the owners of and Rovers would recommend their cars to a friend compared to 75-85% of the owners of cars whose makers who are in the top 10 in the league.

In combination, these figures paint a depressing but consistent picture. Yes, the company had a productivity problem in the 1970s and 1980s, though our historical analysis suggests that this was due to product failure in the market, which led to massive under- utilization of capacity, rather than a ‘lazy worker’ problem, which is how it was often portrayed in the media at the time. The big shakeout in the late 1970s and early 1980s more or less halved the workforce, and then Honda-designed models and manufacturing expertise began to address much of the company’s problem with quality. Respectable, though not class-leading, product reliability figures were one result of this. However, reliability in itself is not sufficient to maintain sales and aging models resulted in low customer satisfaction and hence falling sales. Rover was able to make its products in a reasonably competitive way; the problem, yet again, was that they were not the right products.

6 Conclusion: W hy did Rover Fail?

W hat brought MG Rover to this point? Accident? Mismanagement? Misfortune? Or was this the inevitable consequence of increasing competition in the motor industry?

21 In the early days following the collapse, the main interpretation was that what brought Rover down was the collapse of negotiations with SAIC. W hilst this may have been the trigger, our analysis demonstrates that Rover’s problems were long term in nature, and that the fate of the company was probably finally sealed in 1998 when the decision not to develop the R30 was made. From this point, Rover could offer little other than average quality production capacity to make someone else’s models. In a world where there is massive overcapacity, this was never going to be an attractive proposition to a suitor.

It was not long before fingers started to be pointed at the Phoenix consortium. However, our argument is that Rover’s collapse was largely the consequence of products that were misaligned to the market, a perennial problem that dates back to very early days of the antecedents of British Leyland, and was persistent throughout the company history (c.f. W hipp and Clark, 1986; W illiams et al., 1994; Tiratsoo, 1995). The disruptions of the product development cycles that caused the big decline in sales for the period 2000-2005 had started with the sale of Rover to BMW , but clearly have their roots in the persistent failure to align product portfolio to market needs. The collaboration with Honda was the notable exception in Rover’s history, and British Aerospace clearly played a major part in Rover’s demise, by shedding one very appropriate partner (Honda) for a less appropriate owner (BMW ). Honda and Rover had jointly developed five models (two of which, the current 200/25 and 400/45, were only to be launched in 1995), and it was obvious that this partnership was fruitful in terms of improving Rover’s manufacturing capability and product portfolio.

Although everything is obvious with hindsight, at the time of the acquistion BMW looked like a promising owner for Rover. But for all its technology and profitability, BMW was unable to turn around Rover. The 75, which was developed under BMW ’s watch, was a reasonably successful model, yet could not compensate for the poorly selling 200 and 400 range, which was meeting competition from an increasing offering of European and Japanese models in a declining segment. W hen the R30 project, the urgently needed replacement model in the volume segment, did not receive the government subsidies BMW had hoped for (c.f. Batchelor, 2001), BMW refused to invest a further £1.5bn into model development and the refurbishment of Longbridge. Annual losses had risen from £649m to £750m between 1998 and 1999, and BMW , which had been the world’s most profitable car company, was now losing money, allegedly due to Rover. Unsurprisingly, BMW decided to cut their losses and run.

22 So by 2000 Rover was left with an ageing and technologically outdated product range, built on Civic platforms of the late 1980s, and was competing in declining market segments that did not provide for the volume, and hence funds, necessary to finance the new product development so urgently needed. In our view, if any one event sounded the final death-knell for Rover, it is the late start and subsequent abortion of the R30 project.

W hen Phoenix bought Rover (as the only alternative to immediate closure) it was already obvious to industry experts that death was inevitable, unless a joint venture partner could soon be found. In retrospect, one could criticize the Phoenix directors for portraying the illusion that MG Rover was viable enough to survive, but given their need to secure a partner, this was perhaps inevitable. By 2000 the merger wave that the auto industry had seen throughout the 1990s had subsided, and it became clear that many large-scale mergers such as Daimler-Chrysler were not yielding the hoped-for benefits. Overcapacity was a key concern in the industry. As a consequence there was no rationale for any of the established players to buy Rover, which largely served a region with little prospect for growth in sales. The only possibility for Rover was to seek partners in markets that showed real growth, such as China. Chinese manufacturers, while plentiful in number, are short on technology, and all foreign manufacturers that established operations in China were compelled to set up joint ventures with Chinese companies. In this rapid growth phase, Chinese and foreign manufacturers alike are mainly concerned with establishing their position in the Chinese domestic market, so the interest in Rover by Brilliance in 2002 and SAIC in 2004 was geared at getting access to Rover’s technology (which is still marketable in China and other developing regions), and possibly its brands, shown in Appendix G. Maintaining a volume manufacturing operation in the UK was never on the cards as a long-term option. And as we now know, SAIC had already bought the rights to the 25 and 75 models and the K-series engine (for a reported £67m), and is likely to bid for the manufacturing equipment in Longbridge (valued at £10m), and will hence have received what they were interested in at a fraction of the £1bn deal discussed in 2004.

W ith the progressing sale of the assets (IPR, the land, the parts business, and the finance business MGR Capital), it was obvious that by 2005 MG Rover has consumed both the £470m loan of BMW and all its tangible assets. W e do not wish to anticipate the report into the procedures by Financial Reporting Council chairman Sir Brian Nicholson, but the ‘black hole’ cited in the press is in our view largely the consequence of a dying company that consumes its assets in order to meet its operating expenses.

23 W ould Alchemy have been the better option in 2000? As Batchelor (2001) points out, the union’s position over redundancy payment liabilities made a deal with Alchemy impossible. The Alchemy bid, which would have meant downsizing the company to a small- scale niche sports car maker under the MG brand, would nonetheless have been a much more sustainable option. On the other hand this option would have meant immediate redundancies at Longbridge of at least 4,500 workers, most likely even more. Under Phoenix, the 9,060 Longbridge workers of the total 32,070 Rover employees all kept their jobs in the first instance (Rover Task Force Report, 2000), although under BMW the workforce had already reduced by 7,000 workers, most of whom took voluntary redundancy (Batchelor, 2001), and again under Phoenix the Rover workforce at Longbridge reduced to 5,100 by 2005. Hence, Phoenix cushioned the downfall of the company from a projected 9,060 in 2000 to a redundancy for 5,100 in 2005. The latter should also be seen in perspective, as the Rover group was in fact gradually split up from 1984 onwards, and many of these businesses (Jaguar, Land Rover, and Mini) are still in operation, but under the protective wing of foreign capital. The part that failed in April 2005 was the volume cars business, because it was based on a business proposition that was simply no longer viable.

In the final analysis Rover largely fell victim to a failed product strategy – a perennial problem that had been with the company since its early days – and inconsistencies in how it enacted this strategy. This was fuelled by frequent changes of ownership, following British Leyland’s failure to integrate the brands into a coherent company (in contrast to the likes of Ford and Volkswagen). Partial blame might be ascribed to BAe for its decision to sell its entire stake in Rover and not taking up Honda’s 48% offer, and to BMW for failing to turn around Rover post-1994.

But the main reason behind Rover’s demise was an inability, which started to manifest itself 50 years ago, to manage its various constituent operations – marketing, product development and manufacturing, and importantly, to integrate these - as well as its major competitors were able to do. This failing set in motion a cycle of decline that first manifested itself as a shortage of resources for model renewal, and then took over 40 years to work through. Even when cash was injected – as in the 1970s – the company lacked the capabilities to use this to best effect. Sadly, in many ways the real surprise is not that Rover has gone under – it is that the process took so long to happen.

24 Bibliography

Austin Rover website (April 2005) http://www.austin-rover.co.uk. Batchelor, Joy (2001) ‘Employment Security in the Aftermath of the Break-up of the Rover Group’, W arwick Business School W orking paper series, No 342. Bates, H, Holweg, M., Lewis, M., and Oliver, N. (2004) ‘Motor Vehicle Recalls: Trends, Patterns and Emerging Issues’. Cambridge: Centre for Business Research. BBC News Online (28 March 2000) http://news.bbc.co.uk/1/hi/uk_politics/693309.stm Chappell, L. (2005). 'Analysis: Excess Capacity will haunt N.A.' Automotive News (January 24). Connelly, M. (2004). 'Overcapacity is a Concern.' Automotive News (June 14). Holweg, M. and Pil, F. K. (2004). The Second Century: Reconnecting Customer and Value Chain through Build-to-Order. Cambridge, MA, The MIT Press. Pemberton, M. (2005). Overcapacity - Myth or Reality. London, March, Newsletter, Autelligence. Pettigrew, A. and W hipp R. (1991). Managing change for competitive success. Oxford: Basil Blackwell. Rhys, D. G. (1972). The Motor Industry: An Economic Survey. London, Butterworth. The Rover Task Force (2000) ‘Interim Report to the Secretary of State for Trade and Industry’, April. Tiratsoo, N. (1995). Standard Motors 1945-55 and the Post-war Malaise of British Management. Management in the Age of Corporate Economy: Britain and France 1850-1990. Cassis, J., Crouzet, F. and Gourvish, T., Oxford University Press. Utterback, J. (1994) Mastering the Dynamics of Innovation. Volpato, G. (1983). L'industria automobilistica mondiale. Padova, CEDAM. W ards, W orld Motor Vehicle Data, various years. W hipp, R. and Clark,P. (1986) Innovation and the Auto Industry. London: Pinter. W illiams, K., W illiams, J., Haslam, C. (1987) The Breakdown of Austin Rover: A Case Study in the Failure of Business Strategy and Industrial Policy, Berg Publishers. W illiams, K., Haslam, C., Johal, S. and W illiams, J. (1994). Cars. Analysis, History, Cases. Providence, RI, Berghahn Books. W illman, P. and W inch, G. (1985) Innovation and Management Control, Labour Relations at BL Cars. Cambridge University Press. Womack, J.P., Jones D.T. and Roos, D. (1990) The Machine that Changed the World: The Triumph of Lean Production. New York: Rawson Macmillan.

World Markets Research Centre (2002). WMRC European Automotive Productivity Index 2003. www.wmrc.com.

Acknowledgments

W e would like to thank Andreas Reichhart at the University of Cambridge for his invaluable assistance with the background research for this report.

25 Appendix A: The Consolidation and Disintegration of the Rover Group

DDaaimimlelerr MMoottoorr 1910 BBirirmminingghhaamm SSyynnddicicaattee// SSmmaall l AArrmmss CCoo.. 1960: CCoommppaannyy ((eesstt.. 11886611)) Daimler part of ((eesstt.. 11889933//9966)) BSA sold to 11997799 ––11999944:: Jaguar Longbridge CCoollalabboorraattioionn wwitithh HHoonnddaa;; Longbridge Honda takes 20% ooppeerraattioionnss Austin Motor Honda takes 20% Austin Motor JJaagguuaarr of Rover equity, five joint ssooldld ttoo Company of Rover equity, five joint Company ((SSwwaalloloww SSidideeccaarr models are developed. PPhhooeennixix;; 1959: Mini is models are developed. ((eesstt.. 11990055)) CCoommppaannyy pprrioiorr ttoo rreennaammeedd introduced WWWWIII;; eesstt.. 11992222)) MMGG RRoovveerr by BMC GGrroouupp.. MMoorrrrisis MMoottoorrss CCeeaasseess CCoommppaannyy operations 11995522:: operations ((NNuufffieieldld 11996666:: in 2005. BBrrititisishh MMoottoorr in 2005. OOrrggaannisisaattioionn)) BBrrititisishh MMoottoorr 11996688:: 11998866:: CCoommppaannyy 11997755:: 11998822:: 11999944:: 22000000:: ((eesstt.. 11991133)) HHooldldininggss ffoorrmmeedd BBrrititisishh AAuussttinin RRoovveerr ((BBMMCC)) ffoorrmmeedd RRyyddeerr RReeppoorrtt,, BBLL BBMMWW bbuuyyss BBMMWW sseellsls LLeeyylalanndd GGrroouupp rreennaammeedd Brands: BBLLMMCC rreennaammeedd RRoovveerr GGrroouupp,, ininddivivididuuaal l Brands: MMoottoorr RRoovveerr GGrroouupp • Wolseley nnaattioionnaalilsiseedd AAuussttinin ccoollalabboorraattioionn ppaarrttss ooff MMinini i bbrraanndd • Wolseley CCoommppaannyy aanndd ssooldld ttoo • MG (Morris 1960 aanndd rreennaammeedd RRoovveerr wwitithh HHoonnddaa RRoovveerr aanndd CCoowwleleyy • MG (Morris 11887777:: SSttaannddaarrdd LLeeyylalanndd MMoottoorr ((BBLLMMCC)) BBrrititisishh Garages) ttoo BBLL LLttdd.. GGrroouupp eennddss GGrroouupp pplalanntt Garages) Motor Company Company ffoorrmmeedd AAeerroossppaaccee ((BBAAee)) Motor Company Company rreettaainineedd bbyy •• RRilieleyy (est. 1877) (est. 1896) (est. 1877) (est. 1896) BBMMWW Triumph Motor 1978: Land Rover Triumph Motor 1986-87: Company 1945 becomes own 1986-87: Company Leyland and (est. 1885, first Leyland and Unipart (est. 1885, first 1966/67 are sold off car in 1921) are sold off LLaanndd RRoovveerr car in 1921) 1948: Land Rover aanndd ititss is introduced SSoolilhihuullll Rover 1981: 1984: Rover 1981: 1984: pplalanntt && (est. 1877, first Alvis sold to Jaguar floated off (est. 1877, first Alvis sold to Jaguar floated off GGaayyddoonn car in 1904) United Scientific and bought by Ford car in 1904) United Scientific and bought by Ford RR&&DD ffaacciliiltityy Holdings in 1989 1965 Holdings in 1989 ssooldld ttoo FFoorrdd

AAlvlvisis ((eesstt.. 11991199))

26 Appendix B: Global Car Production, By M anufacturer (2003)

M anufacturer Units Produced 1 Toyota 5,369,176 2 Volkswagen-Audi ,843,085 3 GM 4,682,656 4 Renault-Nissan 4,473,712 5 Ford 3,320,706 6 PSA (Peugeot-Citroen) 2,934,641 7 Honda 2,868,705 8 Hyundai-Kia 2,275,535 9 DCX 1,819,973 10 Fiat 1,619,185 11 Suzuki 1,455,411 12 Mitsubishi 1,303,439 13 BMW 1,118,940 14 Mazda 960,935

27

Appendix C: M inimum Annual Economies of Scale in the Auto Industry. Adapted from: (Volpato, 1983)

Author Casting Forging M achining Stamping Assembly Hoffman (1940) 100.000 - 250.000 units across processes Bain (1956) 300.000 - 600.000 units across processes 60.000 - 180.000 Romney (1958) 360.000 - 440.000 units across processes Maxcy-Silberston 100.000 500.000 1.000.000 100.000 (1959) Eurofinance 1967 -- -- 1.8- 2 million -- 1.5 million Pratten 1971 100.000 250.000 500.000 250.000 260.000 - W hite 1971 Hardly significant -- 400.000 200.000 - 250.000 280.000 CPRS 1975 100.000 -- 500.000 1.000.000 250.000 Eurofinance 1977 2.000.000 -- 1.000.000 2.000.000 250.000 Mini -- -- 400.000 400.000 400.000 Comfort -- -- 400.000 300.000 300.000 Toder 1978 Intermed. -- -- 350.000 250.000 250.000 St.-Lux -- -- 250.000 200.000 200.000

See also (Rhys, 1972) for a European context. Although the figures given in the table are quite old, the core technologies employed to manufacture motorcars have not significantly changed, and it is reasonable to assume that these figures still hold.

29 Appendix D: Austin Rover / Rover / M G Rover: Production Figures by Group, and for Selected Brands

BAe 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Austin Rover 371,427 450,892 389,968 450,726 450,666 434,816 417,351 359,951 339,054 356,280 MG Rover Group (post 2000)

MG * * * * * * * * * * Mini * * * * * * * * * * Land Rover 11,897 14,212 14,486 20,778 24,021 31,803 47,261 35,673 39,743 50,524

BMW Phoenix 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Austin Rover 369,618 350,381 345,503 364,350 303,800 227,743 174,885 134,155 95,082 83,940 63,842 MG Rover Group (post 2000) 174,885 163,144 142,928 136,065 107,583

MG 821 3,186 16,112 13,398 14,400 11,719 * 28,989 47,846 52,125 43,741 Mini 20,417 20,346 15,713 16,831 14,405 11,695 7,070 42,395 160,037 174,366 189,492 Land Rover 71,758 127,414 126,797 127,887 153,500 178,000 159,997 139,005 155,412 N/A N/A * Figures included in Austin Rover / Rover / MG Rover Group.

30 Appendix E: Rover Group/M G Rover Build Programme and M odel Life Cycles

Lifecycle in years excl. Model Platform Segment 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 facelifts Mini Mini A 1959 41 Metro (R100) R6 A 1989 11 Rover 15 Indica (Tata) A 3+ Rover 200 Civic(1) C 1989 7

Rover 200/25 Civic(1) B 11+ Rover RDX30 R30 B - Meastro Meastro C 1982 13

Roer 400 Civic(1) C 1990 6

Rover 45 Civic(2) C 11+ Rover RDX60 R40 C - Montego Montego D 1984 12 Rover 600 Accord D 1993 6

Rover 75 R40 D 1998 8+ Rover 800 Legend E 1991 MGF PR3 (X40) E 11+ MG X70 R40 E - MGX71 R40 E - MG X80 Qvale E 2+

31 Appendix F: Historic Product Variety, UK, Selected M odel Lines

M odel Year Body PowerPaint/Trim Options Total UK Sales styles trains Comb. Variations [year] Vauxhall Viva I - HA 1965 1 2 17 1 59 n/a Viva II - HB 1967 2 4 20 4 728 100,220 Viva III - HC 1970 3 5 23 8 15,848 76,338 Astra I 1983 4 10 28 10 1,495,104 62,570 Astra II 1984 4 11 22 26 53,575,680 56,511 Astra III 1993 4 11 30 15 76,972 108,204 Astra IV 1998 4 13 44 41 55,425,024 81,494 Austin 1100 MkI 1964 1 1 10 3 240 n/a 1100 MkII 1967 3 4 12 3 864 131,282 Allegro I 1973 2 4 n/a 3 448 28,713 Allegro III 1979 3 6 11 6 1,056 59,885 Maestro 1983 1 5 n/a 11 n/a 65,328 Maestro 1987 1 4 105 7 1,132 43,815 (Rover) 200 1991 2 8 44 17 21,792 68,122 200 1998 2 9 60 10 14,960 64,928 25 1999 2 8 106 18 2,742,656 1,170 Ford Cortina I 1964 3 3 14 5 2,688 n/a Cortina II 1968 3 5 n/a n/a 2,880 137,873 Cortina III 1972 3 7 28 12 702,464 187,159 Cortina IV/V 1982 3 6 275 28 219,576,000 135,745 Sierra 1983 3 9 110 35 1,278,852,000 159,804 Mondeo 1993 3 7 51 19 315,072 88,660 Mondeo 1999 3 8 92 16 171,584 77,183 VW Golf I 1980 2 6 26 7 7,216 n/a Golf II 1985 2 6 29 8 2,192 31,145 Golf III 1995 2 11 93 8 16,968 44,111 Golf IV 1999 2 9 211 22 154,964 63,715

32

Appendix G: Brand Ownership (pre-April 2005)

M arque Owner Austin MG Rover Group Austin- * MG Rover Group BMC * MG Rover Group MG *** MG Rover Group Mini BMW Morris * MG Rover Group MG Rover Group Riley BMW Rover** BMW Sterling MG Rover Group Triumph BMW MG Rover Group W olseley * MG Rover Group Source: adapted from www.austin-rover.co.uk

* MG Rover acquired the rights to the asterisked trade-marks from in 2003 ** The Rover brand was licensed to Phoenix in mid-2000 *** The MG brand was valued at £50m in 2000, and $60-100m in 2005. Current status of ownership unclear.

33