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Who Killed MG Rover?

April 27, 2005

The Phoenix consortium was not to blame for the collapse of Rover. The fault-lines that finally led Rover into administration actually go back as far as the early 1960s, says a new report published today (26 April 2005) by the Cambridge-MIT Institute Centre for Competitiveness and Innovation at Cambridge University.

In the report 'Who Killed MG Rover?' authors Dr Matthias Holweg and Prof. Nick Oliver argue that by the time the Phoenix consortium took over, Rover's fate was largely sealed. They say: "When BMW sold Rover to the Phoenix Group in 2000, the new owners were left with an ageing range of models but had no resources to develop new ones. Without a strong partner, a slow death was unavoidable."

The report argues that MG Rover's predecessor, the British Motor Corporation, had struggled to generate sufficient cash for new model development as early as the 1960s. By the early 1970s, though it was producing nearly a million cars a year, it was still unable to generate sufficient surplus funds to renew its range of models. This, they say, set the business on a downward path that successive changes of ownership were unable to reverse ­ although the partnership with Honda came perhaps closest to doing so.

Both Dr Holweg and Prof. Oliver have researched and written extensively on the UK motor industry. This special report, which seeks to assess whether the dramatic end to Rover after a century of car manufacture was inevitable, is published by the Cambridge-MIT Institute Centre for Competitiveness and Innovation, of which Prof. Oliver is co-director. It can be read in full on the Centre's website at: www-innovation.jims.cam.ac.uk/news.php The Centre is based within Cambridge University's business school, the Judge Institute of Management.

The report argues that attempts to create a major British motor manufacturer through the consolidation of independent manufacturers such as Austin, Morris, Rover and Jaguar only ever produced limited benefits. Although these companies were consolidated into the British Motor Corporation, they failed to integrate their operations as successfully as their competitors, largely because they were unable to put past rivalries behind them.

In addition, once out of cash, the British Motor Corporation was dependent from the mid-1970s onwards on external resources for product development - these sources being first the UK government, then Honda, then BMW.

Honda was a partner to Rover for 15 years, and provided Rover with a number of successful new models throughout the 1980s and early 1990s. But the partnership ended abruptly when Rover's then owner, British Aerospace, sold it to BMW in 1994. While Honda had represented a natural partner to Rover, the fit with BMW was never quite as good ­ though BMW pumped large amounts of cash into the company in an effort to revive its fortunes.

When BMW sold Rover to the Phoenix Group in 2000, the new owners were left with an ageing range of models but had no resources to develop new ones. Without a strong partner, a slow death was unavoidable, says the report.

The authors are sceptical that a deal with Shanghai Automotive Industry Corporation (SAIC) would have saved manufacturing at Longbridge. "SAIC did not want manufacturing capacity in Europe, which is what Longbridge offered - it was looking for technology and brands to help it develop its position in the Chinese domestic market," say Dr Holweg and Prof. Oliver.

They conclude: "By the time the Phoenix consortium took over, the fate of Rover was largely sealed. The company's collapse was the culmination of a process that had started more than five decades ago and included a failure to consolidate previously independent companies quickly enough, a persistent inability to develop products that hit the right markets at the right prices, the unfortunate severance with Honda, and BMW's inability to address Rover's underlying weaknesses. When Phoenix took over, the ship was sinking; the only question was how long it would continue to remain afloat. In the end, Rover was forced to consume its own capital in order to stem its operating losses."

Cambridge-MIT Institute, The