MG Rover is in talks with the Indian engineering conglomerate Tata to sell the Indica supermini in the UK.
The move would plug a gap in MG Rover's model line up, giving it a car positioned below the Rover 25 and dealers a presence in the fast-growing supermini sector.
But MG Rover, which recently signed a strategic alliance with China Brilliance, says it will not be pushed into making an immediate decision on the Indica. It admits to having discussed the feasibility of bringing Tata cars to Europe, but claims the talks were planning for the future. “We don't need another small car yet,” says MG Rover.
Tata chairman Ratan Tata was more candid. He says discussions with MG Rover centred on a possible contra-deal, with the Indica rebranded under the Rover name in Europe and Rover models sold as Tata in India.
He believes the strength of the Rover brand would enable Tata to gain a foothold in the cut-throat European market which it would look to build on with new model launches like the Indiva MPV, shown as a concept car at the Geneva motor show this year.
Analysts, though, have raised questions over the quality of the Indica, a concern already acknowledged by Tata, which is looking to source more components from non-Indian suppliers.
Professor Garel Rhys, director of the centre for automotive research at Cardiff University Business School, believes MG Rover will need to handle any agreement with care.
“There are issues with quality levels of cars from Asia. But Rover could do with a small supermini - the 25 is a bit big,” says Rhys.
The supermini sector has exploded in recent years throughout western Europe. The Indica would be a timely addition to the MG Rover range, enabling dealers to exploit this growth. It would also give the company market intelligence for future developments through the alliance with China Brilliance. “A long-term agreement with Tata would add another string to MG Rover's bow,” Rhys adds. “It's an adroit move as long as they get the image right.”
MG Rover, which plans to launch a medium-sized car in 2004 developed with China Brilliance, has set up a committee to identify common areas for purchasing parts and
services. It could have major implications for components suppliers in the UK if the company, as expected, begins sourcing cheaper parts from Asia. MG Rover spends close to £1bn a year with UK suppliers and is looking to cut this by up to 20 per cent.
“The alliance opens up opportunities to assess the supply of car parts, both from China and in the UK,” says MG Rover. “We need to establish the most economic route to market, which may mean sourcing more parts from China.”
The alliance could result in greater production at the under-used Longbridge plant. One benefit of securing an agreement with China Brilliance is that MG Rover will not be dominated like it was under the deal with Honda, which limited the number of 400-series variants it produced.
“Any expansion in the range, adding variants like small MPVs and crossover vehicles, would mean greater demand for components, which would benefit British suppliers,” Rhys says. “It could also unlock production at Longbridge, which is capable of assembling 200,000 cars without breaking sweat.”
Future developments by MG Rover and China Brilliance will be funded by 'royalties' payments from the sale of cars under the alliance. Cars will be assembled in China and the UK with production costs shared by the two parties.