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The Birmingham Post - United Kingdom; Feb 26, 2002
BY JAMES O'BRIEN



The time is coming for MG Rover to form an alliance to push its business forward and that may come with a strong Chinese link.

MG Rover is trying to move ahead with the Chinese company Brilliance which is about the same size as the Longbridge car maker.

Brilliance is looking at growing in Europe and MG Rover is hopeful that it can enter into the Chinese market with the help of an influential partner.

There has been some pressure on MG Rover to make an announcement about its new Rover 45 model, a medium sized car that will cost in the region of pounds 400 million in research and development.

The car is due on the road by 2004. If the talks between Brilliance and MG Rover come to an understanding - and at this point there is talk of a final agreement - then the Rover 45 will probably play a crucial part on what comes afterwards.

The future of the Rover 45 project does not rely on any agreement with Brilliance but the talks with the Chinese company, which is not short of suitors, is preventing Rover from finalising its manufacturing plan to accommodate the car.

The talks with Brilliance include the possibility of building an MG Rover car in China and building a Brilliance model at Longbridge.

Some critics may believe there is a touch of fantasy about the idea but across the negotiating table both companies see it is a matter more ruled in than out at this stage.

Brilliance may want certain components and derivatives on the Rover 45 if it is to import the car and eventually start building it for the Chinese who are now living in a serious consumer society.

'If we form an alliance with Brilliance they will want to be involved in some part of what we are doing specifically for their market,' said one voice familiar with the talks.

'Positive' is a description which is being used and the talks started out with everything on the table up for discussion.

But one subject was not on the agenda and that was a cross-equity investment. There would be very little point for either company to go down that route.

Both are about the same size and have the same objectives but neither company needs money or an investment from the other.

MG Rover is not in dire financial straits and neither is Brilliance. But what both of them want and see as a way forward is an alliance where the technology that both of them have can be swapped beneficially.

One of the biggest costs in the modern automotive industry is research and development and the mission of any company is to trim that huge cost. The way to do that is through an alliance.

One of the attractions for Brilliance is the speed at which decisions can be taken by MG Rover which does not have in place the layers of management infrastructure which some of its rivals have.

MG Rover, led by chairman John Towers, is probably relatively better off than some other manufacturers who deal in telephone number figures. But MG Rover does not have huge debts and its only debts at present at those accrued on the daily operating of the business.

Not many companies start life with pounds 500 million in the bank but that is what happened in early 2000 when the company received the first of its tranche of payments from the previous owner ***.

So far it has only pulled down pounds 200 million from that total and its income has improved by cutting out non-profitable markets.

In a bid to secure longer term financial ground, MG Rover cannot be blamed.

Discussions with Brilliance are across a wide area involving engines and the whole area of car production and marketing.

The talks are going well and if any alliance is agreed then it would be a two-way operation with both parties eventually drawing on what they see as each other's outstanding benefits.

Brilliance expressed interest in acquiring Midland Powertrain - next to the Longbridge car plant - when *** made it known it was prepared to sell the business, but MG Rover acquired the profitable operation in a deal which saw it take over on very beneficial terms.

The talks with Brilliance appear at this stage likely to produce some results and they are at the stage where a 'final agreement' is not far away.

China is now a member of the World Trade Organisation and as the trade barriers drop the world's car makers are beating a path to this new market.

It seems that MG Rover will get its alliance if the Chinese Government gives Brilliance its own version of a nod and a wink.

If it all comes off for MG Rover then it will be a remarkable step forward for a company bought for pounds 10.


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A good read, and a very positive overview of things as they stand.
MGR are playing a very long game as we shall see! It one in the eye for all the doubters.
;)
 
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