A century after beginning car production, Rover is set to rise again from the ashes

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The Independent Online

When John Starley and William Sutton set up a firm making penny farthings in 1877 ­ it was renamed Rover Cycle Company in 1896 and produced its first car in 1904 ­ they would have had no idea of the bumpy ride ahead.

But MG Rover is due to be bailed out by £1bn of Chinese cash, after decades of institutional failure, inefficient production, managerial incompe- tence and irresponsibly led unions, plus the false assumption that a brand could count on British customer loyalty to home-made products.

By the 1930s, Rover had adopted the slogan "Britain's finest car" and was among the most prestigious manufacturers in a car industry second in size only to America. But the seeds for troubled times ahead were sown during the 1950s. The British motor industry, bolstered by demand from a protected home market and large sales to the Commonwealth, was failing to keep up with foreign rivals' innovations in manufacturing and labour practices.

As this became apparent, the company was involved in a series of mergers. By 1968, Rover, Austin, Morris, Jaguar and Triumph were all part of a single corporation: British Leyland (BL). It accounted for 40 per cent of the UK car market and its Longbridge factory in Birmingham employed 25,000 people. Forty years on, the factory has 6,100 workers and MG Rover has less than 3 per cent of the market.

The company started to unravel in the 1970s when unions, under the leadership of Derek "Red Robbo" Robinson, began a war of attrition with management over pay and conditions. The Wilson government had to bail out BL with £2.4bn after the 1973 oil crisis threatened to destroy British car manufacturers. After it was bought by the National Enterprise Board in 1975, funds intended for product development were spent on averting strikes.

In its time, the company has rolled out some of the best British cars such as the P5 but also some of the biggest lemons on four wheels such as the Austin Allegro. Rover's reputation ­ and sales ­ sank, and other manufacturers predictably moved in on a crowded market. It racked up £3bn of publicly funded losses in 13 years. Jobs were slashed from 90,000 to 35,000 in preparation for a privatising sale to British Aerospace in 1988.

BAe was accused of asset-stripping and failing to invest. But it did turn the company into a profit-making venture, and in 1994 it was sold to BMW for £800m, five times what BAe had paid. BMW seemed to offer the long-sought management and funds needed to rescue the firm, investing £3bn in the sprawling plants at Longbridge, Cowley and Solihull. But falling consumer confidence, the strength of the pound and excess European car-making capacity proved a deadly combination. In 1999 Rover's losses hit £725m and 9,000 jobs were cut. Fields were filled with more than 50,000 unsold vehicles.

BMW sold Rover in May 2000 for a symbolic £10 to Phoenix ­ a consortium of four West Midlands businessmen ­ hours before the liquidators from Munich were due to arrive at Longbridge. The German car-maker also left behind a £550m dowry in the shape of an interest-free loan and stocks of unsold cars. At the same time it also sold the one apparent success story of the Rover stable ­ the record-selling Land Rover ­ to Ford for £1.8bn, retaining only the Mini from the sprawling empire it had inherited six years earlier.

The Phoenix executives were greeted as white knights as they arrived, promising the re-named MG Rover would break even within two years. But MG Rover now accounts for less than 3 per cent of all cars sold in Britain, and break-even has been deferred until 2006.

Phoenix has cleverly separated the profitable bits of MG Rover, such as parts, property and engines, from the loss-making car production arm, but this has provoked accusations of asset-stripping.

Now, as it prepares for its fifth set of owners in the past 16 years, will the Chinese succeed where everyone else has failed?