ROVER AUTOMOBILE

SUMMARY

INTRODUCTION

Rover was an automobile manufacturing company originated in Britain. The company was
founded by Mr. John Kemp Starley and Mr. William Sutton in the year 1878.

The company used to produce light passenger vehicle cars with different brands and
specifications e.g Rover 25, Rover 45, which were traded in market as ‘rover manufacturing
cars’. Until 1967, The Company’s brand image was established with many brand loyal customers
in Europe and USA.

British Leyland Motor Corporation (BLMC):

In the year 1968, the then prime minister of United Kingdom, Mr. Harold Wilson merged Rover
with another large automobile company of UK, namely ‘Leyland Motors Limited’ (founded in
1896), to become the ‘British Leyland Motor Corporation’ as the ‘giant national champion’ in the
automobile industry. This proved to be the beginning of the end for the independent Rover
Company as the merger never took off. The plan failed because of following 2 reasons.

1. The production places and facilities of both companies were located at different places
and BLMC failed to consolidate the operations into one cohesive piece.
2. BLMC attempted mass market expansion of Rover but was unable to achieve mass level
of production.

BLMC then had to resort to rights issuance in 1972 to raise funds and further collapsed after oil
price shock in 1974.

Nationalization:

Harold Wilson, in his 2nd term as prime minister, reattempted to label BLMC as a larger brand in
1975 by nationalizing the company rather than continue operating under private ownership. This
lead to industrial relations disputes in forms of labor strikes. The appreciation of pound also hurt
export sales of the company. The result was, UK government injected £900 million over the
period of eight years to keep BLMC alive.

Privatization:

With the arrival of new prime minister in UK, Ms. Margaret Thatcher, the ownership structure of
BLMC was again shifted to private sector from government. A new CEO was appointed and the
company was renamed as ‘Rover Group’.
The group then entered into partnership with Honda to get equipped with latest technology;
though in return, Rover gave up the right to compete with Honda in large markets like USA and
became dependent on Honda cars. However, Thatcher was keen to privatize the car business on
political grounds; therefore she sold the company to ‘British Aerospace’ (BAe) in 1988.

BMW :

The BAe Rover alliance did not work out as both were different sector companies. Ultimately,
BAe sold Rover to BMW in 1994. It seemed like BMW would increase their market share with
Rover without diluting their own brand but unfortunately it did not work out for Rover as well.
BMW was slow in taking control over Rover’s operations as the latter had a market in Europe
but the price was quite high. Therefore, BMW had to cover costs by injecting billions of pounds
in Rover.

Phoenix Era:

Despite of government’s efforts to keep Rover aligned with BMW, the latter gave up and finally
decided to sold Rover to a company named ‘Alchemy’. Because of bureaucracy, BMW sold
Rover instead to four men group ‘Phoenix’. Phoenix intended to make Rover a large scale
producer, but the deal with BMW was so complex that instead of utilizing loan received from
BMW in production of new car models specially MG Rover and ever after receiving good
response for MG Rover, Phoenix was unable to launch new products into the market and kept on
relying to old models i.e Rover 25 and Rover 45.

In comparison to other car manufacturer’s annual capacity of 3 million cars a year, Rover was
producing only 150,000 cars and kept financing it’s operations from sale of assets, technologies
and model rights to other companies. Despite of that, management staff was getting lavish
salaries and perks twice to that of other companies. Phoenix looked to negotiate deals with
Chinese and Indian suppliers, but could not do so.

Chinese Invasion:

Phoenix then set their sights to Shanghai Automotive in China (SAIC)- China’s largest car
maker. Although SAIC didn’t have it’s own brands except for 1, whereas most of the vehicles in
growing Chinese market were foreign based. It gave SAIC an opportunity to expand production
of Rover 25 in China and consequently gave £67 million to MG Rover for technology rights. The
deal never took place as SAIC was baffled by the loopholes on the part of Rover and was
reluctant to invest in Rover. Its only interest was in a joint venture.
Collapse:

By mid 2005, the company’s was on the verge of destruction as production was reduced to only
30% to that of last years, the product- employee ratio was the lowest, huge amounts of
unsecured debts was mounted up and many thousand jobs were at risk as workers were
instructed to stay at their homes. The only reason for survival was injection of £1 million per day
from UK government to keep it alive until general elections. Even after all, declaration of
bankruptcy was not a solution as SAIC and BMW were claiming their rights over Rover brands.

Nanjing:

In July 2005, China’s oldest automobile company and a tough competitor to SAIC, ‘Nanjing’
automobile bought MG Rover brand for £53 million. However problems related to engineering,
procurement, distribution, staffing, brand ownership and goodwill obstructed the way for
Nanjing in order to relocate production to China. Nevertheless, in 2007, it attempted to re launch
MG Rover brand under joint venture with FIAT in China with some modifications which faced
competition with SAIC equivalent of the same.

As Nanjing was operating at a very low capacity, had not been able to stick to it’s plans and
unable to put on a tough competition with it’s rivals (SAIC) for MG Rover brand, SAIC acquired
Nanjing at the end of 2007. The deal was supported by Chinese Government as like Harold
Wilson to achieve consolidation in motor industry. This puts to an end Nanjing-FIAT JV and
SAIC invested heavily for core operations of Nanjing and restructuring of production facilities
i.e 70% in China and 30% in Europe.

Current Challenges:

Though Chinese market is 2nd largest car market after US and is growing quickly, it is not easy to
position a small brand i.e MG Rover in mass market while retaining its prestigious position as
there are dozens of local Chinese car manufacturers who offer at low prices. Moreover, it is also
difficult to go for international market as the MG Rover brand is too small to be globally
competitive and Chinese cars have not proven any success at global level and are often
considered as low in quality.

Name: Hasan Bin Tariq

ID: 64052

Course: Strategic Marketing