Business View: Labour on edge of its seat in a real-life Longbridge drama

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The Independent Online

In the recent BBC series The Rotters' Club, set in the 1970s, Longbridge was virtually a character. The management vs union tensions within the then British Leyland plant were a backdrop to the coming-of-age drama involving Birmingham teenagers. But these days, the real drama is at the car plant.

In the recent BBC series The Rotters' Club, set in the 1970s, Longbridge was virtually a character. The management vs union tensions within the then British Leyland plant were a backdrop to the coming-of-age drama involving Birmingham teenagers. But these days, the real drama is at the car plant.

It was in June last year that MG Rover - as Longbridge's owner is now called - first announced a strategic alliance with Shanghai Automotive Industry Corporation (SAIC). In November it emerged that this alliance was to turn into a takeover, with SAIC supposedly going to pump £1bn into the ailing plant. Since then, more details have come to light, implying that SAIC is to take control of the business and Longbridge will in effect be a supplier to the Chinese. Without this deal, good or bad, MG Rover is staring down the barrel of insolvency.

The Government is very worried about what is going on at MG Rover. For eight years it has eschewed conventional political involvement in business - not supporting national champions, not stopping foreign takeovers of iconic assets, not bailing out troubled companies. Yet with Longbridge it has a blind spot. When the blundering Stephen Byers was Trade Secretary, the DTI tied itself up in knots trying to support the company, initially falling foul of European state aid rules before brokering a deal that let the so-called Phoenix Four executives take over MG Rover for a nominal payment.

Now, facing the prospect of 6,500 voters in marginal seats losing their jobs just before an election, it is tying itself up again. To succour MG Rover, while it awaited its Chinese saviour, the Government initially agreed to defer around £40m in VAT payments. To speed things along, the Chancellor used his influence on a recent trip to China. A team from the DTI is there now, hoping to help. And the Treasury has indicated it is willing to cough up a further £100m bridging loan to support MG Rover until the SAIC deal can be completed.

But can it be completed? MG Rover is a weak brand producing not terribly good cars in a soft world market. In recent weeks we have seen DaimlerChrysler admitting to difficulties in its prestige Mercedes-Benz business; General Motors admitting to dreadful problems in its automotive side, and even the great BMW fretting over how it can grow its profits. Making cars is such an unprofitable business that I'm reminded of Warren Buffett's great comment about aviation: "If a capitalist had been at Kitty Hawk for the first Wright brothers' flight, he'd have shot the damn thing down."

With the prospect of administration for MG Rover looming, the blame game is already starting. The Phoenix Four - who paid a tenner for MG Rover and then took out tens of millions to line their pension pots - will have fingers pointed at them. How did they conduct the negotiations with the Chinese? Were they as explicit as they could be about redundancy and pension liabilities? Or were they merely trying to make the best of a very bad job?

MG Rover is drinking rice wine in the last-chance saloon. If a deal with SAIC can be pulled off, the management will be heroes. If it can't, there's no doubt that in this drama, the Phoenix Four will be lambasted as rotters.

Buffett's sad slip-up

The mention of Warren Buffett brings me to the strange goings on involving the company he owns, General Re, and the US insurance giant AIG. I am of the view that anyone who says they understand what goes on in the world of reinsurance is either very clever or bluffing. The Sage of Omaha is clearly very clever. And, up till now, he has enjoyed a reputation of being squeaky clean in his business practices.

But US regulators are now calling transactions between General Re and AIG improper, saying they were merely ways of making AIG's figures look better. In a nasty echo, another General Re deal, with the bust Aussie insurer HIT, has had to be unwound after accusations that it was fraudulent.

Mr Buffett says he was not aware of these transactions. I have no reason not to believe him. But he has always prided himself on imbuing the highest standards in his subordinates. He has either failed to supervise or failed to communicate. It is a sad indictment in the twilight of a brilliant career.

j.nisse@independent.co.uk

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