How does Alchemy think it can turn Rover into a gold mine when so many others have failed?

Six months of secret talks have given one man control of car firm. But unions and ministers now ask if he can make it work
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The Independent Online

The third floor of a Covent Garden office block, between London's theatreland and the tourist-packed piazza, is not the most obvious setting for the rebirth of Britain's motor industry. But here, in the headquarters of Alchemy Partners, a venture capitalist has been secretly plotting the takeover of Rover for the past six months.

Jon Moulton, 49, the managing partner of Alchemy, is hoarse from meetings and telephone calls and bleary-eyed from lack of sleep. But he is brimming with enthusiasm and defiant in the face of the anger provoked by BMW's disposal of Longbridge and most of its British car-building operations.

"We have done this deal to make money," said Mr Moulton. "We would hope to see a profit for our investors in two or three years and then sell the business on within seven years. Longbridge will be reduced in size. but not closed. We are not asset-strippers."

But details of how Alchemy will achieve this turnaround from losses of £745m last year, much less fund its insatiable appetite for cash, are painfully thin. Alchemy, which is reinventing Rover as the MG Car Company, has pledged to develop "a state-of-the-art British-built product range worthy of the sporting heritage of the MG name". It has also promised to keep MG in the medium-volume segment of the market and provide "significant" employment at Longbridge.

But Mr Moulton is coy on details of the business plan, such as how much it will invest, how many jobs it will preserve among the 10,000-strong workforce and who will manage the business. For now it will continue producing the Rover 25, Rover 45, MGF and the old Mini at Longbridge, while BMW has agreed to build the Rover 75 for it under contract at Cowley, the Oxford plant.

But the main question is what Alchemy plans for the future. Mr Moulton says production of the new MG model is likely to be 50,000 to 100,000 and that Alchemy will have a workforce at Longbridge of 1,000 to 8,000. The new car, based on composites and aluminium-body technology, will not appear for at least 18 months.

Alchemy and its plans for Longbridge were drowning under a tide of scepticism among unions leaders, ministers and industry analysts yesterday. The bitterest reaction came from unions, which feel their members at Rover have been betrayed by BMW. Tony Woodley, of the Transport and General Workers' Union said: "This is the bleakest day in British manufacturing industry. We can see the loss of tens of thousands of British jobs and the break-up of the largest of the British car-manufacturing companies. If the situation doesn't change, it appears we will be in dispute with this company."

But he dismissed Mr Moulton's prospects of success. "Alchemy is a company with no track record. I find it difficult to believe they have the finance in the medium and long term to keep this car plant open. Certainly, it would be impossible in my view for them to fund the design, development and introduction of new models. Therefore if these proposals are not changed, Longbridge has no future."

The last three owners of Rover - the government, British Aerospace and now BMW - pumped in £20bn, only to see losses mount and its market share fall from 30 per cent to under 6 per cent as product after product failed to capture the imagination of the car-buying public. For every occasional success, like the Range Rover, there have been lemons in the shape of models like the Maestro, Montego and Sterling.

Moreover, if the bottomless pocket of the taxpayer and the resources of two large private companies could not resurrect Rover, why should a three-year-old venture-capital company with no expertise in the car industry fare any better?

John Lawson, a motor industry analyst with the investment bank Salamon Smith Barney, said: "Alchemy will struggle for a while to be seen as a credible owner of the business, although it has some interesting ideas. The decision to drop the Rover name is exactly what I would have advised them to do. It is absolutely critical that you have a completely new identity and model to launch. But most external analysts are going to ask how they will finance the next model series."

Mr Moulton says Alchemy will cut costs by outsourcing most components. He estimates that the developments costs of its new MG cars will be "tens of millions of pounds" compared with the £1.7bn BMW had planned to invest in Longbridge to produce a family of medium-sized cars.

But Garel Rhys, professor of motor industry economics at Cardiff University Business School, doubts whether the MG Car Company has a long-term or even medium-term future without a big brother. "That General Motors had to step in and help Fiat shows just how enormous you need to be to survive in the motor industry these days. Clearly, this new company is not a long-term option but an entrepreneurial venture. It has to be seem as a holding operation in the hope that a closer link with another manufacturer evolves, perhaps resulting in the sale of a minority stake or an agreement to use Longbridge to make cars on a contract basis," Professor Rhys said.

"The MG Car Company might be turning back the clock but it does signal a return to an independent British car company. Although Longbridge has been sold to them for nothing, there is no way that an organisation like this will be able to meet the investment required for a new model."

Mr Moulton says Alchemy will continue to have a relationship with BMW, which has an agreement to produce the Rover 75 at Cowley and is likely to be an engine supplier to Longbridge from the £400m plant it is completing at Hams Hall, in the Midlands. But BMW's withdrawal after six years and £4bn of investment shattered many people's faith in the company.