Divorce will cost both partners dear

THE 15 fruitful years of collaboration between Rover and Honda has probably saved the British car maker at least pounds 1bn in model development costs. But the benefits are not solely financial, for the partnership has also brought Rover what money cannot buy - working practices that are the envy of many other Western car makers and Japanese engineering know-how.

Nor have the benefits flowed only one way. Rover has enabled Honda to gain a foothold in the UK and European car markets at a fraction of the cost paid by its two Japanese contemporaries, Nissan and Toyota. Honda also earns pounds 400m in licence fees and component revenues from Rover each year.

Would Honda really throw all that away in a fit of pique simply to exact revenge on BMW and embarrass British Aerospace? And could the Japanese bring Rover to a standstill even if they wanted to?

There are three principal areas in which the two car makers collaborate: licensing agreements and joint model development; the sale and purchase of components; and technology transfer.

With the exception of the revamped Rover 800, most of the cars built by Rover are based largely on Honda designs and manufactured under licence from Honda, entirely so in the case of the Rover 400 and 600 series.

Honda says these agreements can be terminated at three months' notice. Rover says the agreements remain in force for as long as it wishes to produce the cars.

Honda also licenses Rover to build its PGI gearbox, which goes into all two-litre versions of the 800, 400, 200 and Land Rover Discovery. Rover manufactures the gearboxes at a rate of 1,800 a week at its Longbridge plant in Birmingham. Honda could withdraw this licence.

As for components, the principal collaboration is on engines and body panels. Honda's Swindon plant manufactures 70,000 engines a year for Rover, including the 2.7- litre V6 engine for the Rover 800. It also supplies facias for the 600.

Rover in turn produces all the body panels for the Swindon-built Honda Accord at a nearby pressing plant, using tooling supplied by the Japanese.

But it is not only the Rover cars that depend on Honda design expertise. Much of the equipment used to build them at Longbridge and Cowley, from the tooling that cuts the metal and the robots that weld the body shells, to the computer software that runs the production lines, has also been developed and supplied by Honda.

Finally, they operate a common base of component suppliers and a joint database, enabling each company to keep tabs on the 20,000 or so parts that feed their manufacturing plants.

Honda may not like the idea of all this Japanese technology falling into the hands of a German competitor. But the cost to it of pulling the rug from under Rover, in both financial and public relations terms, would be enormous.

It is almost certainly a price Honda has no intention of paying, anyway. Yesterday it made no attempt to contradict Rover's assertion that the latest product of their collaboration - a medium-sized car, codenamed Theta by Rover and HH by Honda, which is scheduled to appear in a year - would go ahead as planned.

That apart, however, the two partners are probably headed for divorce. There is no new collaborative model on the drawing board, the two companies having failed to agree on a replacement small car. And there is already speculation that Honda will create the more independent European operation it spoke of yesterday by building its own pressings plant in Swindon.

The key dates in an affair to remember

December, 1979: Agreement signed to manufacture Honda Ballade-Triumph Acclaim at Cowley.

April, 1983: Agreement signed for joint development of Rover 800- Honda Legend.

May, 1985: Honda UK Manufacturing established.

December, 1986: Contract signed for joint development of Rover 200- Honda Concerto.

August, 1988: Government sells Rover to British Aerospace.

April, 1990: Honda and Rover agree 20 per cent cross-shareholding.

October, 1991: Agreements signed for the two companies to develop Rover 600-Honda Accord, to collaborate on component purchasing and on staff training.

October, 1992: Production begins at Honda's Swindon car plant.

October, 1993: Honda agrees to sell Land Rover Discovery in Japan badged as Honda Crossroad.

January, 1994: BAe sells Rover to BMW.

February, 1994: Honda terminates the cross-shareholder arrangement with Rover.