End of the road for MG Rover

IN the end it wasn't the cars, the unions or the salesmen who did for MG Rover. It was the accountants and the politicians. A confidential report drawn up by Ernst and Young for would-be partner Shanghai Automotive concluded Britain's last mass market manufacturer had come to the end of the road.

The report discovered that the group's parent only had enough money to make it to the end of March. After that, it was technically insolvent.

When the document was given to the Chinese officials who commissioned it, the conclusion was enough to scupper hopes of a Shanghai-led bail out.

A similar report by KPMG for the Government prompted a last-minute intervention by the Department of Trade. But even the offer of a £100m bridging loan was not enough to convince the Chinese that MG Rover had a future.

The writing was on the wall at the end of last week when Shanghai Automotive declined an invitation to send a delegation to London for talks to get the deal back on track.

Instead, the Government suffered the ignominy of being seen to scramble a team of civil servants to China. Their orders were clear: the Government's nightmare was a collapse on the eve of a General Election. They needed to do whatever was required to patch things up. By then, it was all too late.

With the benefit of hindsight, it is easy to see where MG Rover started to unravel. The company has suffered a slow and undignified death.

The rot set in during the 1970s and 1980s with a succession of poor cars and strikes led by militant trades unionists that brought British Leyland, as it was then, to its knees. Chairman Michael Edwardes used MI5 to root out the worst of the union agitators, but by then the damage was done.

The die was cast in 1999 when Gordon Brown baulked at a request by then-owner BMW for £200m of Government aid to build a new medium-sized car (the Rover 55) at Longbridge, in Birmingham.

The Government wrongly believed it could play hard ball with BMW. The Germans had already committed £1.5bn to Rover and could not easily switch production of the car to a greenfield site in eastern Europe. The Treasury believed it had them over a barrel.

It was a disastrous mistake. The Treasury's paltry £118m offer intensified feelings within BMW that a way had to be found to solve the Rover problem. From that moment, the Germans started to look for a way out.

The Government later increased the offer to £129m and, with help from local Midlands businesses, the grant was increased again to £152m, but by then it was too late.

Had Rover's medium-sized car gone ahead, there is every reason to believe the company would have survived.

The idea was to sell the vehicle in three different guises as a Rover, a Mini (known as the Mini Maxi) and an MG Sprite. Production volumes of 400,000 were predicted. Even if they had proven optimistic MG Rover would have still been bolstered by the success of the Mini (at the time Mini was still part of the British group) and the Rover 75 executive saloon.

The company would have had no problem reaching the 200,000 production figure needed to guarantee its future. Crucially, cash-rich BMW would have been able to bankroll the new models the group needed so desperately.

But when the Germans walked, so did MG Rover's last chance. As a minnow in a sea of sharks, the British company was not big enough to survive alone. Even with a £550m "soft loan" provided by BMW, the company's new owners were merely delaying the inevitable.

BMW also took the plans for the Rover 55 medium car and work had to start again. The project suffered a further blow when the contractor hired to develop the replacement went bust. Ironically, the new car is almost production ready but now seems as though it will never see the inside of a dealers' showroom.

When the Germans quit, then Trade Secretary Stephen Byers, who had tried and failed to get £200m for the BMW deal, was aghast at the idea of MG Rover falling into the hands of venture capitalists Alchemy, who felt the Rover brand had no future. It wanted to concentrate production on MG sportscars and believed the group would only survive as a small volume maker of high value (and high profit) vehicles.

As a venture capital company, Alchemy's raison d'etre was to take control of failing companies, and turn them around. That meant selling them as a going concern or, as was more often the case, splitting them into pieces and holding a fire sale for interested parties.

The alternative was a loose group of businessmen and car dealers gathered together under the banner of the Phoenix Consortium.

Headed by former Rover Group boss John Towers, they promised to keep the company going as a volume manufacturer, but initially faced hostility from BMW.

When Alchemy walked away from a deal, Phoenix, which had been coming up on the rails, found itself in play. A deal that would normally have taken four months was done in ten days. The company was sold to Phoenix for a nominal £10 and MG Rover was back in British hands.

What the company really needed was a sugar daddy. A company willing to fund a generation of new vehicles.

Honda, once the group's co-developer of new cars, wanted nothing to do with the ailing British firm.

Towers and his colleagues scoured the world for a potential partner. Talks were held with European car companies, Malaysians and India suitors.

Unfortunately, MG Rover had very little to offer other than mounting debt. Its K-series engines were reaching the end of their lives, the design teams had been slimmed down, gearboxes were bought from the French and the whole range - apart from the Rover 75 - was virtually antique.

No wonder the only people interested were the Chinese, who saw a chance to acquire an established, if tarnished, brand at a low price. But when they saw the financial picture, even they walked away.

A good indicator of a company's health are the overseas sales figures. Rover sales, in particular, make grim reading. In February, the last month for which they are available, sales were down almost 50 per cent.

The CityRover, the Indian-made small car that was supposed to offer MG dealers something cheap to sell in bulk, found only 299 owners, a fall of 66 per cent against last year's already poor results. And that wasn't the worst of it. The Streetwise managed only 159 sales, down a huge 74 per cent on the previous year. No wonder the Chinese began to get cold feet.

In the recent TV adaptation of The Rotters' Club, the Longbridge factory, in Birmingham, was so pivotal to the 1970s that it felt like another character. Whether it was strikes, jobless or yet another "last chance saloon", the British public have always taken Rover to their hearts.

Maybe that's why the Government tried, albeit belatedly, to save the group with yet another injection of taxpayers' cash.

If only the Chancellor had been far-sighted enough to sign off a £200m loan to BMW six years ago, perhaps all this heartache could have been avoided.

Longbridge operations are in the Birmingham Northfield constituency, but it draws its workforce from ten others, which have slim majorities.

If Labour suffers a General Election massacre across the Midlands in a month's time, will anyone blame Gordon Brown for being just a little bit too prudent with the purse strings all those years ago?

Bigger car manufacturers have come and gone in recent times.

Earlier this year, Daewoo d isappeared from British high streets with barely a ripple of interest. Soon a mass cull of the Smart brand will reduce its presence dramatically.

But none of these had the history or the sentimental attachment of MG Rover.

Writing about the bitter Rover/BMW divorce in January 2001, I concluded: "The Phoenix consortium which purchased Rover for the laughable figure of ten quid hasn't got time on its side. Despite the BMW dowry of £550m that came with the company, new models are desperately needed.

Unless the group can find a larger partner - and soon - it is debatable whether or not Britain's last UK-owned volume car manufacturer will be able to survive for another five years standing alone."

Sadly, I gave Rover 12 months too long.