Outlook: Kill or cure for BMW's English patient
Thursday 01 April 1999
The deal still has to be signed off by the BMW board in Munich and although it isn't the full pounds 200m they were asking for, it is as much as they are going to get.
Threatening to take the investment to Hungary (much to the surprise and bemusement of the Hungarian government, incidentally) only provided so much leverage for the Germans. Longbridge's record may be lousy, but the idea, anyway, that Rover's customers would be more inclined to buy a car made in eastern Europe was always a high-risk assumption.
For BMW, the Longbridge option is hardly risk free. Even after the Government cash injection it will still require another pounds 1.5bn from BMW to turn the plant into something resembling a modern car facility. This, remember, on top of the pounds 3bn that the Germans have already funnelled into the "English Patient" since 1994 only to be repaid with mounting losses (pounds 650m last year) and a market share which has dwindled so alarmingly that Rover now resembles a niche player but without any niche models.
But think of all those shiny new paint shops and welding robots that BMW will be buying not to mention the vast sums of German money that will be needed to retool suppliers so that they too can play their part in the Rover revival.
Whether this is a wise use of taxpayer's money is a tough call to make. In the scheme of things pounds 150m is peanuts - we will probably soon have spent that much trying to bomb the Serbs into submission.
It is also important to recognise that state aid can sometimes be the seedcorn that is needed to turn an ailing business around. Ford bought an expensive lemon in Jaguar in 1989 but pounds 100m of taxpayers money is helping turn it back into a world beater with cars that people want to buy being made in Coventry and, soon, Halewood.
But Longbridge is in the toughest sector of the market. The replacement for the Rover 200 and 400 will be up against the likes of the Volkswagen Golf, one of the best sellers of all time, and the Ford Focus, which has the world's most profitable car maker behind it.
We will not have too long to wait for the answer as to whether Rover can live with the best. The success, or failure, of the R75 executive car, due on the forecourts this summer, will tell BMW whether it has backed a loser again.
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