Rover: stalled or motoring?

They may greet visitors in Chinese at Longbridge these days. But are the new owners here to stay?
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Walking round the almost deserted Longbridge site is a bit like Groundhog Day, one visitor to the former MG Rover plant remarks. "Nothing has changed for the past year."

One year ago yesterday, MG Rover went into administration. On 22 July, the Chinese company Nanjing Automobile Corporation (NAC) bought the loss-making British car maker for £53m. Out went the builders' tea and cucumber sandwiches once served to guests in the boardroom. The new owners offer Chinese tea instead.

Gone too is the man dressed up as John Bull, complete with Union Jack waistcoat, handlebar moustache and brown leather boots, who used to greet people outside the main gatehouse. Now the (British) employee at the security gate welcomes his new bosses with a greeting in their native tongue.

The main car-assembly plant lies idle, with two of the four production lines dismantled and shipped back to China. In the marketing and general administration office, there are enough desks, chairs and PCs for at least 50 people. But only a handful of seats are filled.

Inside another building, now designated the "international headquarters", there appear to be more signs of life. This is where the executives from Phoenix Venture Holdings, the factory's former owners, used to work. Chinese nameplates have been screwed to doors, some hastily, and there is Chinese writing on the whiteboard (with a few English letters, such as DTI - more of which later).

Inside the half-empty offices there are more clues to the identity of the new owners: a Chinese calendar is pinned to a wall, a Chinese flag twinned with the Union Jack has been mounted on a table, and a Fiat holdall (Nanjing has a joint venture with the Italian car maker in China) thrown on to a desk. But despite the arrival of the Chinese, the Longbridge site still has a temporary feel.

NAC has promised to resume car production at Longbridge in 2007. But when it took over the remaining 33 years on the lease in February, the company added to doubts about the sincerity of its long-term commitment to the UK by insisting on a six-month get-out clause in case it was unable to find the financing to make its business plan work. NAC has until July to exercise this clause and keep car production at Longbridge. The clock is ticking.

Why did NAC buy MG Rover?

Owned by the Nanjing provincial government, NAC has enough capacity in China to make 200,000 cars, vans, buses and trucks, mainly through its joint venture with Fiat. The saloon cars it produces are sold exclusively in China, though some of its commercial vehicles are exported.

Like most ambitious Chinese companies, NAC wants to become a global player. It bought MG Rover to acquire Western technology and expertise, and crucially, a well-known brand recognised outside its homeland. It has gone on to dismantle MG Rover's Powertrain engine plant and take it back to China, along with the production lines for the MG variants of the Rover 25 and 45. NAC will be building a new plant in China to make 200,000 of these small and medium-sized cars from next year.

Speaking through an interpreter, Wang Yaoping, the legal and commercial director of NAC, who is based in Longbridge, says: "We think if we can make full use of Asian, European and Chinese markets, the MG technology and brand and a low-cost base in China, this project will be a success." The main reason MG Rover failed, he says, was that it never became a global player.

Mr Wang says that NAC wants to make Longbridge "the frontline" for its global expansion plans. "We would like to establish an assembling, R&D, sales and marketing base here in the UK," he adds.

One source close to NAC says it has been in talks with the state authorities of South Dakota, Connecticut and Oklahoma about setting up car-making operations in the US. Mr Wang agrees that production in America is possible in the future.

What about production plans - and jobs - at Longbridge?

NAC wants to start production of the two-seater MG TF sports car some time next year, and Mr Wang says it aims to match MG Rover's production levels before it went into administration, at around 10,000 to 12,000 cars per year. Employment would be created for up to 400 people, in addition to the 40 or so already working at the site. In the medium term, production of the MG variant of the Rover 75 saloon car could also be restarted at Longbridge.

Mr Wang won't give details, but NAC is close to finalising a business plan for the site, which it will submit to the Department of Trade and Industry (DTI) in a "matter of weeks". He says NAC needs £50m to fund the resumption of production next year.

Since buying MG Rover, NAC has been looking for a British partner for the UK operations, to provide both financing and advice. Mr Wang explains: "European and US companies who first went to China did not know much about China. For them it was best to find local partners. It's also the same for us. We do not know much about the local market and local people. We think it's best to have a local partner so we can work together."

But NAC has yet to find a partner. It originally teamed up with the engineering firm Arup last year to help it with new designs for the MG variants of the Rover models. It also signed a joint venture agreement with GB Sports Cars, a small team of UK car industry executives. But NAC has now broken off talks with GB Sports Cars because it could not provide enough financing. Talks with another consortium, led by the corporate rescue expert David James, have also ended. Mr James has plans to build Smart cars in Coventry instead.

Mr Wang says NAC is talking to other potential partners. "We are still looking. A lot of parties have contacted us, but different people have different ideas and conditions. We are also talking to foreign investors." It is understood that NAC has secured an as yet unknown amount of funding from Hong Kong banks.

Even if NAC cannot find a partner - and time is running out - Mr Wang insists that production will return to Longbridge next year. But industry experts say that the chances of this happening - and the scale of new production at Longbridge - hinge on it being able to team up with a Western partner.

Nick Matthews, principal fellow at Warwick Manufacturing Group, says: "For it to work, Longbridge needs a first-world, not a developing-world, partner. Nanjing does not have the technical know-how to make it a success. It does not have the scale of Ford, which can buy components for its niche cars at a far lower cost."

He also questions why anyone would want to invest in Longbridge with NAC in the first place. "It's hard to see how anyone can make money from a 10-year model in Europe on these tiny volumes. There's already overcapacity in the automotive sector."

Professor Garel Rhys from Cardiff University Business School adds: "Nanjing needs a partner and they need finance. It would be very difficult for them to go it alone. No Chinese company could."

Why does NAC think the Government will help?

NAC reckons it may not have to go it alone, even if it cannot find a partner. Mr Wang says he hopes the DTI will provide financial support to help return car production to Longbridge. In the business plan NAC will submit to the Government, probably by the end of next month, the company has "suggested" the level of public funding that might be provided (which he declines to state, but is thought to be at least £10m).

Days before MG Rover went into administration, ministers offered a loan of £100m to keep the company afloat. The Government hoped to ensure that the takeover proposed by Shanghai Automotive Industry Corporation (SAIC), Nanjing's rival and the original suitor for the British company, went ahead. This money was in addition to the £40m in cashflow support from the Inland Revenue and Customs & Excise.

NAC reasons that it too is entitled to state aid, since its plans to restart production at Longbridge would also create local jobs. "If they were committed to provide financial support to SAIC, why not give us some kind of support?" asks Mr Wang.

He is keen not to appear to be threatening the Government that NAC might otherwise scrap its production plans. But he makes it clear it will have to scale back and employ fewer people if help is not forthcoming.

"We will still produce cars here," he says. "But whether we will be able to employ as many people ... We will say this: it will influence the quantity of our activities." But whatever happens, Mr Wang insists that the company will remain in the UK: "We have already stepped outside of China. We will not take a step backwards."

Anthony Glossop, chairman of the property group St Modwen, which owns the Longbridge site, agrees: "They would look like idiots if they pulled out and then tried to come back to the UK in two years' time, starting from scratch on a new site."

But whether production returns to Longbridge in any significant capacity remains as uncertain as ever. In China, most businesses are state owned and political and commercial interests are intertwined. NAC's confidence that the DTI will take a similarly interventionist approach at Longbridge could be misplaced.

The Government has come under heavy fire for trying to prop up the failing MG Rover. The National Audit Office concluded that loans and assistance it received in its dying months did not represent value for money. And the political climate has changed in the past 12 months. With no votes at stake in a general election year and no more British jobs to save - they have all gone - NAC should not bank on handouts at Longbridge.