Outlook: BMW gets tough

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EX-PREMIER joins Mayflower board - shares fall 6 per cent. Not exactly the sort of headline that John Major or the company were hoping for. It was their bad luck to announce Mr Major's first UK directorship on the same day that BMW sandbagged the car parts industry by deciding to switch half of Rover's component spend overseas.

As it happens, Mayflower will probably emerge relatively unscathed once the Germans have finished taking the axe to Rover's UK supplier base. The sub-assemblies and body panels it makes for the Land Rover Discovery and MGF sports car do not travel very well so it would almost certainly be a false economy to switch to Continental suppliers, even if they can do the job more cheaply.

But how many more of Rover's 700 UK suppliers can say the same? It took Munich four years to decide that the only suitable treatment for its English Patient was to strip Rover of its autonomy, sack half the workforce and put Longbridge on notice that without massive productivity improvements it would close. Faced with a 50 per cent cost disadvantage when buying British - in part a product of the strong pound, BMW has decided not to wait the same length of time to sort out its UK supplier base. Today nine out of 10 components on the Rover25 are stamped "Made in Britain". When the R30 takes to the roads, it will be half-British at best.

From next April, anyone not prepared to bill Rover in euros can say auf wiedersehn. In fact, only those companies who are internationally mobile and can supply Longbridge and Cowley from inside the euro zone are guaranteed a place at the table.

It is rough justice for those suppliers who are too small either to relocate overseas or set up a treasury department to hedge their currency exposure.

A BMW spokesman helpfully explains that with 60 per cent of Rover's output now destined for overseas markets, mainly in the euro-zone, there is an "inherent imbalance in the purchasing spread". This couldn't be a sideways invitation to join the single currency, could it?