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MG Rover: what really happened

Former managers have revealed to AM the desperate measures taken to make MG Rover look like a viable business as the Phoenix Four saw hopes of financial rescue by Shanghai Automotive (SAIC) slipping away.

Retailers were encouraged to take on huge quantities of cars, but as the larger groups began protesting, the emphasis switched to the small owner-drivers.

“We were twisting the arms of the little guys,” says one manager. “There were all sorts of scams going on: we were mortgaging the future. The idea was we didn’t need to declare anything until the deal was done. If the company went down, then it would not matter.”

MGR’s 80 senior managers were briefed by directors each fortnight and some are convinced they were misled. They think they were encouraged to put pressure on dealers to take cars, keep the Longbridge assembly lines rolling and inflate the registration figures.

Kevin Brown, corporate sales director when MGR collapsed, agreed to be named because he wants dealers – especially those with small businesses – to know how badly he feels. He was head of strategy at RAC Business Solutions before returning to Rover.

“I feel let down by the Phoenix directors, as I was encouraged to join from a good job at a great company. I thought the risk was quite small as the commercial and strategic logic behind the deal from the Chinese perspective was very strong,” he says.

“It seems the deal was much riskier than I had thought. I feel sad for the people at Rover who have lost their jobs, and for the dealers, who invested lots of money and were pretty supportive. Some of them will suffer quite badly.”

The “commercial and strategic logic” was that Shanghai Automotive Industries Corporation (SAIC), assembling cars for GM and Volkswagen to sell in China, had global ambitions and wanted to purchase an established brand.

The managers think John Towers did believe, last November, that a deal would be clinched when he announced that it was on the way. This was premature in the eyes of SAIC, whose directors became suspicious. “Towers was trying to make SAIC hurry into a deal because of MGR’s dire financial position,” says one manager.

The original logic was that the Chinese wanted to emulate the entry of Japanese manufacturers to Europe by shipping components from South-east Asia for assembly in the UK. Longbridge wasn’t perfect but it could be bought for a lot less than a plant like Honda’s site at Swindon.

In late 2004, the Chinese car market was cooling after a period of vigorous growth. SAIC’s ambitions were blunted and interest in MGR began to fall away, but Longbridge managers were repeatedly assured by their bosses that only the contract fine- print was delaying the big deal.

The reality was different. Towers and co made staffing cuts to impress the Chinese, who said there were too many employees for a British 3% market share carmaker.

Just before last Christmas, the Phoenix Four produced a new business plan. MGR, with just under 77,000 UK registrations in 2004, was to sell 97,000 in 2005. Somehow, the average net income after deduction of fixed overheads was to rise from £1,018 to £1,823 per unit. By October 2005, MGR’s UK market share was to rise to 5%: “It was madness, ” says one former manager.

Area business managers were put on £5,000 bonuses to hit March targets. Cars were placed with daily hire companies, who paid a monthly rental for a fixed period, before the cars were returned to MGR to be sold through dealers.

Chief executive Kevin Howe called managers to his office and ordered them to achieve sales targets at any price – as long as the money was in MGR’s hands by a specific date in a month, such was its knife-edge financial position.

Hundreds, possibly thousands, of new MGR cars went to Phoenix Venture Motors, the retail network owned and operated by the company. The retail network took increasing volumes of heavily discounted new cars, with Rover 75s offered at 48.5% discount.

Brokers bought new Rovers on the same terms, and were told to dispose of them discretely. At least one ended up on eBay Motors, much to MGR’s dismay.

Many dealers never received promised bonuses because of the company collapse and dozens of small MGR dealerships are now close to going under (network numbers have already dropped from 267 to 220 in the past month).

As the crisis deepened, the hunt began for whoever was passing correct information to newspapers – reports that were strenuously denied by MGR at the time. Those reports are now forming the basis for some tough questions from the UK Government.

Recalls add further woe for retail network

With several recalls affecting MG Rover cars, including the 75, Mini and the MG TF, and up to four more recalls yet to be issued, including one for the CityRover (right) on a trim defect around the front wheel arch, dealers are asking who will be accepting responsibility.

The Vehicle Operator and Services Agency (VOSA) supervises the recall of vehicles with safety defects, with the cost for notifying owners, and for repair work, passed to the manufacturer. “In MGR’s case it is whoever is responsible for the company at the time. If any future recalls occur, it would need to be a Government decision on costs as it is a road safety issue and we are obliged to send out notification to owners,” says a spokesperson.

However, administrator PricewaterhouseCoopers is classing recalls as the same as warranties. “The company is not in the position to reimburse dealers for recall work, it is up to individual dealers,” says a PwC spokesperson. “There are no funds available.”

That claim is refuted by Richard Cort, chairman of the MG Rover Franchise Board. “That’s something which PricewaterhouseCoopers will have to look at,” he says.

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