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Copyright 2002 Sunday Business Group - The Business

March 10, 2002

HEADLINE: MG-ROVER HITS THE ROAD FOR BRILLIANCE

BYLINE: Jon Menon;

At the Geneva Motor Show last week MG Rover's new concept car and the MG TF roadster stole the limelight. But behind the flashbulbs, the more important story concerned the talks between the British carmaker and Chinese manufacturer,Brilliance.

Rover's chief executive, Kevin Howe, spent most of his time at the show locked in talks with officials from the Shanghai-based vehicle maker about an alliance on an engine-development operation, and to share components and build cars in the UK and China.

A tie-up with Brilliance, one of China's biggest van and sports utility vehicle manufacturers, could be announced within weeks by the loss-making carmaker, bought from *** for £10 in mid-2000. But industry analysts are unimpressed. MG Rover will be a relative latecomer to the Chinese market and many manufacturers have already carved out a presence in joint ventures with former state-owned carmakers.

Such alliances and manufacturing operations in China circumvent tough import tariffs that protect the domestic industry. Carmakers are secretive about the profitability of the region. Until recently it was considered lucrative for carmakers, including Volkswagen, which sells 350,000 cars a year there. It has a50% market share and has had a presence for 20 years. Volkswagen will introduce the Polo and Bora for sale alongside its larger Passat saloon next year.

But this is set to change after China's admission to the World Trade Organisation last December. Beijing cut import tariffs from between 80% and 100%to between 44% and 51% in January, and a further cut to 25% will be made in 2006.

The reduction is expected to lead to import prices falling by up to 20% and prices of domestically-produced cars by about 12%.

Competition is expected to intensify dramatically as carmakers take advantage ofrapidly growing demand from the emergent middle class in China. Most sales used to come from corporate buyers of larger sedans. But carmakers are now launching smaller, cheaper cars for private buyers.

US giant General Motors, which sold 20,000 cars in China last year, is seeking to expand, while Ford is to set up a plant in southwestern China to make small cars by the end of this year. France's PSA Peugeot Citroen and Renault are also planning an economy-sized model for China.

But as the market becomes more open, smaller companies will come under intense pressure and could experience overcapacity, with too many cars chasing too few consumers.

Brilliance, which is about the same size as MG Rover, already has alliances withother manufacturers. *** has signed an agreement with it and is expected to start manufacturing cars in China later this year. *** sold fewer than 5,000 cars in the region last year, but could reach 30,000 a year if it begins production there.

The fear for MG Rover is that it does not have the resources to compete when margins become thin amid cut-throat competition.

"Rover is clutching at straws. The probability of anything coming off is just soremote," said Peter Schmidt of Warwick consultancy Automotive Industry Data.

It is difficult to reach a conclusion about MG Rover's prospects until full details of the proposed deal are known. But the company's hopes of breaking eventhis year after reporting a loss of £200m last year, with a production run of 200,000, remain uncertain.

Rover's UK share has slipped to below 3.5% for the year to date and some analysts believe it would be better for it to focus on building sales closer to home.

"It would be absurd for Rover to go to China," said Christian Breitsprecher of Deutsche Bank. "They need all their resources to develop their cars for the European market. I don't see why it would make sense."

It is a vital time for MG Rover. It is expected to outline how it will develop areplacement for the Rover 45 medium-sized car in the next few weeks. The car, togo on sale in 2004, is essential for its long-term survival.

The new model is unlikely to be significantly affected by the Brilliance deal. Adeal which would lead to component sharing with Brilliance would be severely badnews for the tens of thousands of jobs which rely on the carmaker's business in the West Midlands. It would not begin to affect component suppliers until a new model is introduced by MG Rover in 2004.

But MG Rover must seek to save costs on procurement to survive in the long term.The fact that the carmaker gained a stay of execution in 2000, when *** initially considered its closure, has at least provided parts suppliers with time to diversify their customer base.

The Rover 45 is in the segment responsible for the bulk of its car sales. It remains uncertain how MG Rover will replace its smaller Rover 25 car. While thiscar could eventually be phased out, Rover has not closed the door entirely on the possibility of importing cars from Indian manufacturer Tata. Talks have beenheld with the group, although these are not likely to finish soon.

At the same time, workers at the Longbridge plant near Birmingham are balloting on whether to strike over the continuation of flexible working imposed under ***. The company can ill-afford a strike and union officials have recommended the 5,000 workforce accept the proposals.

The next few weeks could prove to be the longest in the carmaker's 125-year history.

Originally posted by Paul Fucito
 

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I stop reading any article as soon as Schmidt's name crops up. Either he has an awful memory or just likes repitition, but he cannot seem to grasp the fact that MGR are NOT in competition with the likes of Renault, PSA and the rest, but are producing niche models for a niche market, . I would therefore, If he is reading this, invite him to comment on how the likes of Proton, Tata, all survive on similar volumes, and indeed with cut throught competiton mainstream models!
MGR's business plans is proving to be bang on track, and indeed are slightly ahead of the projected situation envisaged at this time. Funding for the next generation of models is firmly in place, and therefore the future is secured. I have no doubt that MGR will seek further alliances, and seem to be following a very logical path in partnering a different manufacturer for each model proposed.
Many of the critics of MGR are increasingly less vocal these days as Longbridge continues to irritate them by thriving, but there are always those who choose to make idiots of themselves.
 
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Discussion Starter #3
Thanks Dave - have to admit - I didn't read the full content until pasted. It was the first article found I pasted into the new Forum. Paul - also said he would post further MG-Rover based articles!

However, I think it matters not on whether the article is pro or anti MGR, with people in the know like yourself who can brief us whether the writer, is biased or otherwise. :D

Maybe you should moderate this one - and if the article is written by such a person - edit with a little note at the bottom of each saying so. Nick Young has also volunteered to moderate this on (will add add you both this pm if you agree)! :D
 

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Happy to oblige. I'm sure Nick will help me keep order! Everyone here could find something to criticise MG-R over, it would not be much of a forum with nothing but outright sycophancy. But there is a line to be drawn 'twixt criticism and just plain trouble making. So, if you like, I am happy to "Cut the c**p" as they say ! ;)

I see that chap from the Sunday Times was fired for dispensing duff info, btw.
 
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Discussion Starter #5
Thanks Dave - you are now moderating this one with Nick. The ST guy was very MGR vindictive - I remember him writing something stupid in Auto Express too.

Do you remember that article in "CAR" too - that was very anti MGR?

If anyone else reads this and want to help out on other Forums - please reply to this thread! Only rile that must apply is some experience on the Forums - so we know that you are interested in the subject!

For instance the ZR & ZS Forums has some serious owners out there now.

For example the ZS Forum has - Climber - Anthracite and Kelvin to name but a few!
 
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