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Rover's future hit by launch delay

Production problems are blighting the launch of the company's new saloon, on which its survival depends
PRODUCTION problems are blighting the launch of the Rover R75, and calling into question BMW's ability to sustain its loss-making British subsidiary.

Originally scheduled for a late spring launch, it does not look now as if the model will be on sale until September. Rover still expects to build 50,000 R75s this year, but leading suppliers now suspect the true figure will be nearer 25,000. Rover had initially predicted it would make 125,000 of the new executive saloons in 1999.

The delay dashes hopes of any recovery at Rover this year. It also calls into question its ability to make profitable new cars at its Longbridge plant, for which it is seeking a government subsidy of pounds 300m.

On Friday, BMW announced that its otherwise excellent results in 1998 had been hit by Rover. Now analysts are wondering when Rover will ever make a profit.

"The delay of the R75 puts back any recovery even further. We don't foresee any profit in the coming years," said Klaus-Jurgen Melzner, an analyst at Deutsche Morgan Grenfell. He predicts that Rover will lose pounds 130m in 1999, followed by a further pounds 30m in 2000, but fears the losses could be higher.

Mr Melzner said: "The Rover 200 and Rover 400 are simply not competitive. We don't expect the plan to cut costs by pounds 150m will work as expected. They have tried to cut costs in the past. And we see the British market turning down sharply, affecting Rover in particular."

The Christmas period has been awful for Rover, with Longbridge production of the 200 and 400 shutting during December. January has been miserable for the car trade.

"We are down 20 per cent in January, in line with the market, and the importers continue to have a field day," a Rover spokesman said.

Deutsche Morgan Grenfell expects the market to decline by 9 per cent this year, particularly affecting those companies depending on older models, such as Rover.

Meanwhile, this weekend, motoring correspondents from Britain and Germany are enjoying Rover's hospitality in Seville as they test drive the R75. Around 850 journalists from around the world are being shown the car, making this Rover's biggest-ever launch.

A spokesman said: "This will hopefully demonstrate to people where we're going with the Rover brand. The car's an all-new vehicle built in an all- new facility. This is the new beginning."

Professor Garrel Rhys of Cardiff Business School is impressed with the Cowley production line. "But they have to ensure that they get the quality right from the start. They cannot afford to have new buyers testing the car. And they must get the pricing right."

Sources in the supply industry suggest that, while the R75 is excellent to drive, the car is over-complex to build, reducing its profitability.

Nevertheless, Rover remains optimistic about the car. Magazine reviews due to be published next week are confidently expected to be glowing. "We have been told we have a winner on our hands. If you think of the great cars of the past, how many do you remember that were delayed at launch?" asked a Rover spokesman.

Longbridge's survival probably hinges on the success of the R75. If sales do not meet forecasts, Melzner at Deutsche Morgan Grenfell suggested, "the hard solution would simply be to close Rover down, keeping Land Rover".

"The gentler solution would be to find a buyer, perhaps either Volkswagen or Fiat - if they wanted to buy," he said. "Only a mainstream manufacturer has the efficiencies of scale to make profits from Rover's low production figures. BMW does not have the ability to cut costs in the same way."

Threat to Dagenham, p26