BMW cuts to hit UK jobs
Rover to buy more parts from the Continent in cost-cutting measure to save Longbridge
Sunday 14 February 1999
The bad news comes on the heels of fears that Rover's Longbridge plant could be closed by the German car company after a dramatic change of leadership nine days ago .
BMW is searching for ways to cut losses at its mass market car unit by rejigging models and by reconfiguring its global manufacturing plant. Included in this rethink is Rover's relations with parts suppliers.
"Typical British auto parts companies, which have not become globally competitive and have put their eggs into one basket, are going to catch a cold. Many are starting to panic," Paul Fleming, UK director of Delphi Automotive Systems, one of the world's largest automotive supply companies, said.
Mr Fleming's estimate, based on plans stated by Rover to transfer overseas between 10 and 15 per cent of its purchasing, could be on the low side. Last week, the new BMW chairman, Joachim Milberg, proposed further moves to cut Rover's costs.
Manfred Schoch, head of BMW's trade union council, said: "Because Rover mainly buys its parts in high-cost Britain, Milberg has decided to change buying policy. In future, Rover will increasingly buy parts in continental Europe."
The threat to Rover's suppliers comes as BMW and the British Government are close to agreeing a financial package to rescue Longbridge. A Rover spokesman said: "Conversations are proceeding and we expect to see an imminent conclusion, but not this weekend."
BMW is believed to be looking for pounds 300m of British taxpayers' money to help fund its pounds 1bn investment programme. This would enable a new generation of front-wheel drive Rover cars to be built at Longbridge.
Both Rover and the unions quietly accept that the massive investment in Longbridge will happen only on condition of further job cuts as the company strives to lift productivity, lower unit costs, and return to profit. An existing programme of 2,500 voluntary redundancies is close to being concluded and new flexible working patterns have been introduced. Currently, 14,000 are employed at Longbridge.
The slimming-down of Rover is expected to hit Britain's pounds 18bn automotive parts industry hard. Rover generates a quarter of the industry's sales. Auto parts makers employ 50,000, many in small-to-medium-sized businesses.
Particularly under threat are the uncompetitive companies highlighted by the former BMW chairman, Bernd Pischetsrieder and the Department of Trade and Industry. They have indicated their concern about the widening gulf between world-class companies such as GKN and "the significant tail" of under-performers in the sector.
LucasVarity recently closed its automotive wiring plant in South Wales with the loss of 600 jobs. Delphi has transferred 500 jobs to continental Europe.
"Britain is still an attractive base to make those hi-tech products depending on high capital investment. That is the future," Mr Fleming insisted.
The future for Rover itself, meanwhile, looks tough. The car company is estimated to have lost around pounds 500m last year. With sales slumping by 47 per cent in January, it has just announced a series of discounts on current models.
Under the cost-cutting plans proposed by Mr Milberg, Rover will no longer be run at arm's length, duplicating BMW's costs. Storage facilities, parts distribution, marketing and administration are all to be streamlined. Even Rover and BMW car servicing will share facilities as far as possible.
But close integration with Rover raises the stakes for BMW. It means that it cannot sell off Rover as a separate entity, should it fail to produce low-margin mass-market cars successfully. This high-risk strategy could ultimately cost the company its independence. Nevertheless, BMW's commitment remains undimmed despite recent boardroom turmoil.
"It's full steam ahead as far as the new models are concerned at Longbridge," said Mr Fleming.
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