How the spirit was broken

After the German carve-up of Rolls-Royce and Bentley, Hilary Clarke sees who has emerged stronger from a deal hatched on the golf course

THERE WASN'T a dry eye in the factory after Graham Morris's resignation last week as chief executive of Rolls-Royce Motor Cars. It was an emotional and dramatic finale to a tumultuous week that ended the troubled sale of the country's most prestigious brand and last British car maker of any importance.

Morris acted like a true gentleman. He had always promised his workforce at the Crewe plant that he would never lie to them. For the past nine months, he had been reassuring the 2,500 workers at the plant that the factory would continue to produce both Bentleys and Rolls-Royces whoever owned it. So when Volkswagen and BMW carved up the company, Morris quit. It was, he said, the only decent thing he could do. "Despite everything else that has gone on, this is too much. It is a matter of integrity," he said.

For Morris, the last straw was that, without his knowing, the two German companies had struck a deal on a golf course in Bavaria early on Tuesday morning to split the brands. BMW took control of the Rolls-Royce marque for a paltry pounds 40m, with the likelihood the cars would be built elsewhere. For the pounds 479m it paid for the plant, Volkswagen got the factory in Crewe and the Bentley brand. Morris was informed about the deal just a couple of hours before Volkswagen boss Ferdinand Piech and BMW's Bernd Pischetsrieder flew together to the UK to announce it to the world. "It's about leadership. I've led my people through the past nine months and maintained credibility and I feel they [the Germans] have undermined that - at this stage," said Morris.

If he had been of another nationality, say French, his resignation would have elevated him immediately to the status of national hero. But then the French would never have sold to a foreigner a brand as prestigious as Rolls-Royce, however much it cost to keep it. Nor for that matter would the Germans.

But this is Britain and we are Anglo-Saxons and here the shareholders' needs come first. That is why Vickers, the seller, decided to sell Rolls- Royce Motors to the highest bidder, even though BMW was the favourite for every other reason apart from the amount of money it was ready to pay (pounds 340m).

BMW already owns Rover and seemed the best placed to maintain the "Britishness" of the company. Rolls-Royce plc - the company that took over the engine- making wing of the business when the company was split in the early Seventies, and which owned the rights to the brand name - was in favour of BMW. The two companies are already partners in various aerospace projects and BMW makes the engines for Rolls-Royce's current car, the Seraph.

Morris and the workforce in Crewe were not the only ones bowled over by the golf-course deal. German bankers like to joke that Volkswagen's chief executive, Ferdinand Piech, suffers from the same disease as fellow Austrian Adolf Hitler - megalomania. Financial analysts and the media in Frankfurt and London were quick to triumph in what they saw as BMW's victory over Piech. They may have acted a little over-hastily. While Piech has said he would have liked to have kept both brands, he is not so stupid as to as to allow himself to be tricked by his arch rival and nor are his lawyers. Piech knew when he signed the contract on 7 May with Vickers to buy Rolls-Royce that it was up to him to negotiate the right to use the name Rolls-Royce. It was written in the contract, the same one drawn up for BMW a month earlier. He also knew the person he had to negotiate with - Rolls-Royce plc boss, Sir Ralph Robins - had the last say and was a close business ally of Pischetsrieder.

In fact, it seems there were no talks at all about the amount of money that the rights to the Rolls-Royce brand, and with it the famous grille and Spirit of Ecstasy mascot, would cost.

Indeed, from the beginning of the bidding war, Volkswagen said it was more interested in Bentley than Rolls-Royce, but that was dismissed by commentators at the time as a negotiating ploy. So maybe Piech was not too unhappy to let Rolls-Royce go.

"I don't understand why people are applauding BMW,"said Hans Hartmann, an analyst with Dresdner Kleinwort Benson in Frankfurt. "People are looking at the small price BMW paid for the Rolls-Royce brand name. But a brand name is not a car."

Under the new agreement, BMW has to build a new factory. It is very difficult to build a plant that will be profitable if it is making just 2,000 cars a year, even if you charge a hell of a lot of money for them. Then there is the question of know-how, so important if the quality of Rolls-Royce is to be maintained and improved. Morris has already resigned. Volkswagen is going to have to pay a lot of money to skilled workers from Crewe to lure them to another site. Piech, on the other hand, should find it quite easy to increase production at the Crewe plant of Bentleys from 1,500 a year to between 5,000 and 10,000, particularly if as promised he goes for a medium-sized Bentley.

Volkswagen, the fourth biggest car company in the world, is much richer than BMW and almost twice as big. Both companies wanted Rolls-Royce for the prestige more than anything else. The European car market is already saturated and the name of the game is who can get the best luxury model to compete with their common enemy Daimler-Chrysler and its Maybach, the state-of-the art car-to-die-for which is due on the market in the next three or four years. Before buying Rolls-Royce, Volkswagen had 18bn German marks (pounds 7bn) in cash. Volkswagen can afford to take more risks than BMW and yet, now the dust on the deal is settling, it looks like it still may have won the safer half of the bargain.

Gerhard Shroder, the Social Democrat who is challenging Chancellor Helmut Kohl in September's elections, was also present at the golf course in Bavaria in the early hours of Tuesday morning. As leader of Lower Saxony - Volkswagen's home turf - and a member of the company's supervisory board, it is unlikely he would have seen Piech worked over by BMW, and he also needed to show to the German voters his skills as a peacemaker advancing the interests of Germany as a whole.

The only real losers in all this are the workers at Crewe, whose jobs now seem less safe, having been promised all along by both companies that the links with the northern city would be maintained and strengthened.

"The fact that someone as respectable as Graham Morris feels compelled to resign encapsulates all the fears of the workforce about the deal," said Gwyneth Dunwoody, the local Labour MP. "They, the Germans, obviously think the British workforce is not important." Workers at BMW's other UK subsidiary, Rover, probably agree as the axe hovers over 1,500 jobs there.

"One good thing is we've got time on our side," said Steve Taylor, union convenor at Rolls-Royce. Under the deal hatched between Volkswagen and BMW on Tuesday, Volkswagen will continue to make cars under the Rolls- Royce name until 2003. BMW may already have flouted EU rules on workforce consultation and complaints have also been lodged by both the Rolls-Royce unions and Dunwoody to the new head of the Department of Trade and Industry. The grand old lady of British cars could give its new owners a bumpier ride than they had bargained for.

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