In the increasingly competitive automotive business, the cost of new models is rising; barriers to trade and investment are falling. Car companies therefore have to be both big and efficient to survive. Neither subsidies (national or European) nor protectionism can save them from leaner competitors.
Under BAe's wing, Rover has made spectacular progress. Two years ago, its workers made 10 cars a year each; the figure now is nearer 30. Before interest payments, the company turned in a respectable operating profit in its last financial year - and managed to increase sales in a falling European car market. Yet the firm's long- term alliance with Honda was not secure. Having gained entry to the European market, the Japanese firm now has a plant in Britain with the capacity to turn out 200,000 European cars a year.
Despite its 20 per cent shareholding in Rover, it is hard to see that Honda would have wanted to go on sharing its new models with the British company indefinitely. BMW's price - pounds 1.7bn, including Rover's copious debts - thus looks generous. The pounds 150m for which BAe bought Rover from the Government six years ago may have been too low; but the bulk of BAe's profit on the deal comes from improving efficiency, not from the taxpayer's pocket.
Labour MPs who criticised the sale in Parliament yesterday probably realise this. Their demands for guarantees of the livelihoods of the Rover workforce, however, were unrealistic. Whatever BMW has said in its published letter to Michael Heseltine, Rover workers are safe only as long as it remains profitable for their company's German owners to employ them - but the same was true before the sale.
Given the degree to which the Rover and BMW marques compete for buyers, there is a risk that BMW will want to cut capacity. Under the circumstances, however, it would be unwise to do so in
the UK. Even accounting for the greater productivity of German workers, British workers' low wages make them much cheaper to employ; so, if anything, production at Cowley should go up rather than down. Moreover, BMW has much to learn from the exposure of Rover's managers to Japanese methods. It would be wise not merely to give them freedom in running the UK business, but also to seek their help in its operations in Germany.
The fate of Rover, and the contribution the company makes to the British economy, will ultimately depend on how the new Anglo-German business faces up to Japanese competition. If Rover and BMW together can hold their ground when the European market is fully open - and in the long term can sell successfully in the United States and Japan - their joint future will be secure.Reuse content