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Car confidential: What does SAIC want with MGR?

MG Rover sups in the last chance saloon, its existence hinging on a successful partnership with its new Chinese partner, Shanghai Automotive Industry Corpora-tion (SAIC).

Today’s Euro-centric business model – where Longbridge production is at least 50,000 units below break even – is clearly unsustainable. Only a strategic partnership, offering access to emerging markets, can turn the red ink black.

MG Rover has been speed-dating like mad. There have been numerous secret trysts, and several public ones: China Brilliance and Proton (both failed), and Tata (floundering due to insufficient sales of the overpriced CityRover).

However, MGR is hammering out a deal with SAIC – full details should be disclosed in January.

Already Longbridge has received a tranche of cash to fund the 45 replacement. With the cost of a new model around $1bn, it is hard to see how MG Rover could fund it alone. The car has been pushed back to 2006, as MGR gets SAIC input into the styling.

The Chinese have also helped flesh out the model range, with a saloon crucial for the car’s prospects in the People’s Republic and improved chances of an important MPV version.

The look will resemble the 2002 TCV show car’s, although the styling has been updated. The platform is a cut-down and decontented version of the 75’s, with revised K-series petrol engines, a common rail diesel unit and a six-speed manual gearbox.

What does SAIC want with MGR? It has established relationships with far bigger players in VW and GM, but to assemble cars under licence, not the joint development opportunity that MGR offers.

SAIC is clearly ambitious. It has bid $500m for SUV-maker SsangYong Motors of Korea, and MGR and SAIC are in talks to buy the former Daewoo plant in Poland, with an eye on penetrating eastern European markets. MG Rover has to focus on the east. But the Chinese market is fraught with danger, according to analysts John Wormald and Graeme Maxton in their new book ‘Time for a Model Change’.

They fear the Chinese car boom may slow down, and believe even giants like VW and GM may be squeezed out as indigenous industry blossoms. This is not unprecedented: that’s how the tele-communications, pharmaceuticals and computer markets have developed.

“Almost every business in the world sees China as a massive opportunity,” write Maxton and Wormald. “We think that almost all will find it a graveyard eventually.”

Will China be MG Rover’s salvation? Time will tell. Perhaps SAIC will eventually buy MG Rover, which could be the best case scenario for Longbridge’s directors. But would the same apply for the Midlands plant and its workforce?

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