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Discussion Starter · #1 ·
Ok, I don't even own a car - but I care about saving our heritage! Having spent days thinking about the situation at MG Rover I reckon there is a solid financial argument for the government to keep MG Rover going and tracked down this forum to share my thoughts.

Now I know that statistically government bale-outs have been a disaster and they often just pospone the inevitable, but in this case I think the circumstances justify it.

I also know that Under EU law, governements aren't supposed to be allowed to prop-up ailing industries, but it didn't stop Jacques Chirac from propping up Alsthom (iconic French company that built the TGV, Eurostar, and the Northern Line trains that don't fit the platforms ;-) with £700 million by buying shares in the company. Imagine the French having to source their beloved TGV trains from Siemens in Germany or the Italian train builder - there would be riots in Paris! Anyway I digress.

Assuming that the press reports are accurate(first time for everything!) the problem is that MG Rover need to sell 180,000 vehicles a year to break-even, but whilst last year they sold 145,000 units, this year that dropped to 119,000. The age of the range is generally blamed for this, as the newest model is 8 years old, bar for a couple of cosmetic face lifts. The problem is that developing a brand new model costs about 500 million, which they don't have, hence going cap in hand to the Chinese to get 1,000 million to develop a couple of new models, which if successful could have got them on track to profitability.

Ok, the usual pro bail-out argument is that it's better to prop up a company than have to pay benefits to the people who lose their jobs. But taking human misery out of the equation, in strict financial terms I don't think that holds water in this case - Assuming 18,000 people lose their jobs including the support industries, and say 3,000 of them retire or get jobs straight away in MacDonalds, Tesco and so on (with the rate that manufacturing/engineering jobs are going to China, and Office jobs are going to India, there won't be much else for them!) that leaves 15,000 people on benefits. Assuming a generous average of £120 a week in benefits, that comes to about £93 million a year. Assuming half of them have partners that are earning, the other half won't be paying any council tax, so taking an average of £1,000 per head per year, that's another £7.5 million a year lost to the (local) economy. So that's about £100 million a year give or take - 1/10th of what SAIC were reportedly offering to invest.

On that basis, taking into account interest rates and the fact that people would gradually find other jobs, the company would have to go on another 20-30 years to justify the investment, and if the new model(s) flopped then it would still close in a couple of years.

However, there is another issue. Looking at JamJar.com, Virgin Cars and so on, the main range seem to retail for between about £8K - £20K (RRP £11K - £25K). Lets assume that sales are spread evenly across the range, and that the middle men take 50% of these discounted prices, that means that Rover receive an average of £7K per vehicle.

Now lets assume that each vehicle has £1.5K worth of imported materials (not many rubber plantations in the West Midlands for making tyres for example ;-)

In that case, last years MG-Rover sales of 119,000 vehicles retained / brought in £654 million into the UK economy. 99.9% of those 119,000 people who bought an MG or Rover last year would have still bought a car if MG-Rover didn't exist - but instead of £654 million going into the UK economy, it would have been divied up between the French, Germans, Italians, Japanese, Americans and various far eastern countries. What's more, this annual £654 million hole in our economy will go on for as long as people buy cars!

On the other hand, if Tory blair found a way to give them £1,000 million of our hard earned cash to develop at least one new model - even if they revived the Austin Allegro and sales remained static, causing them to go bust in 2 years time, it would have still retained £1,308 million in the UK economy over the next 2 years - effectively returning the investment back to the economy (albeit not in a liquid form that the government could re-use) even allowing a modest rate of interest.

Course what they really need to do is a reality tv show where Jeremy Clarkson sits down with their designers and beats them around the head if they come up with stuipid ideas like reviving the Allegro or Maxi ;-) I hate reality TV, but even I'd watch that one :) If they can please Jeremy Clarkson then they could be fairly assured of having a winner on their hands - they don't have the luxury of waiting for it to be ripped to shreds on Top Gear before they do something about it! Maybe even Tory Blair would trade in his Audi! The new Mini is designed and built in Britian and is very successful - so we can do when we want to, only problem with that one is that the profits go to Germany!

Course a lot of "foreign" cars are built in the UK (Toyota, Nissan, Peugeot, Honda, Jaguar, Land Rover, Range Rover, Mini) but for how long? A couple of years ago Peugeot hailed their UK Peugeot 206 plant in Coventry as being the most productive plant that they own worldwide, and the only one in europe to work 24 hrs a day and without a summer shutdown. Now they are looking for 850 redundancies, and they've already hinted that they will transfer production of the 206 to their new factory in Slovakia as soon as the paint is dry in 2006. It doesn't bode well for their UK factory.

Nissan were very reluctant to build the new Micra in Sunderland, and only agreed to do so after getting a government grant. If we can give foreign companies aid to build cars here then I don't see why we can't help our own, provided of course that they get the design, build-quality and marketing right.

Doubters always cite the Austin Allegro, Austin Maxi, Morris Marina, TR-7 (nice looking car - terrible reliability) and so on as a reason why British Leyland should have been shut down years ago - but they conveniently forget that Mini, Jaguar, Land Rover, Range Rover and so on were also part of the same group - and are still very successful all these years later now that they have proper management and financial backing behind them (Ford and BMW), and that the unions no longer call the shots.

It is interesting to note that in the BBC forums there are a lot of people who say "I own an MG/Rover and it's great", and a lot who say "MG/Rovers are crap" but none who say "I own an MG/Rover AND it's crap". I know my bro used to buy second hand BL cars, and had no more problems with them than with the Nissan or Fords that he has had.

In terms of the management at MG-Rover, the media always look for people to demonise, usually by missing out vital facts. Fair enough, on the surface it seems excessive to take £40 million out of a company making such heavy losses, leading naturally to accusations of asset stripping.

But when you look at it, there are 4 of them, and they've been at it for 5 years, so that boils down to £2 million each per year if the reported figures are correct. However, that doesn't take into account the fact that they put an undisclosed amount of their own money into the company (that'll be the tenner they used to buy it from BMW ;-) nor that in 5 years they have brought their annual losses down from £800 million to £70 million. Although there is obviously a lot of creative accounting going on there, In any other company if someone improves "profitability" by £730 million a year then they'd be looking at getting paid a lot more than a £2 million a year as a bonus! And let's not forget that BMW were ready to liquidate the company 5 years ago, nor that the only other offer on the table was to turn it into a morgan like specialist manufacturer employing a handful of people. Thanks to their efforts 18,000 people have been kept in jobs for 5 years.

Of course it would be a gamble, but I reckon if they had the money to build new models (with safeguards to make sure they can't snaffle any of the dosh!) then they could probably pull it off and get the company making a profit again. Naturally in X years time all cars will be built in the Far East unless there is a major change in world economics before then, but I still think it's worth saving it until that day.

What's your thoughts? Are there any major holes in my arguments? Are my figures way out?
 

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I think that's a very eloquent case Jon, very well put.

The idea about a semi-public/reality TV development programme for a new model is an interesting one. Personally I couldn't care less what Clarkson thinks, but imagine if the British public really felt that this was "their" car, having seen (and maybe been involved in) the trials and tribulations of its development and so on - there would be a heightened awareness of the marque and the product. There's have to be real safeguards to make sure the fickle British consumer didn't lead the company down the wrong path (anyone remember the Simpsons episode where Homer helps design a car?).

Just as the Seymour Powell "Designs on your..." series a few years ago led to enormous boosts in awareness of the products involved, so even an ongoing series following the development of a new Rover/MG product without audience participation could do a lot of good. Make sure it's not part of "Trouble at the Top" though.
 

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Discussion Starter · #5 ·
Thanks for the replies, I've sent it to Tony (best stop calling him Tory for now ;-) with the link that someone else posted.

I'm not a fan of Clarkson either - if a car is genuinely bad then he has a duty to warn the public, but I think he often blows things out of proportion. I think if they could satisfy one of their most vocal critics then they'd be well on the way to getting the support of our fickle media.
 

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Nice One

Very well put. Management and accountability is the key to this one.

If only they would listen!!!!!!!!!!!!!!!!!!!!!!!!!
 
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