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Cabinet ready to rescue Rover deal

Read it here.

Mark Milner, industrial editor
Wednesday March 30, 2005
The Guardian

The government was under mounting pressure last night to safeguard key Labour marginal seats in the west Midlands by intervening to prevent the collapse of delicate negotiations between MG Rover and its proposed Chinese partner.

Whitehall sources expressed concern that the Chinese have got cold feet about the deal since the chancellor, Gordon Brown, visited that country last month.

It is understood that the state-owned Shanghai Automotive Industrial Corporation (SAIC) is keen to identify precisely the financial liabilities involved in the venture with the last British-owned volume car manufacturer.

With a general election for May 5 due to be announced next week, Labour is desperate to ensure that the future of MG Rover is settled. A spokesman for Patricia Hewitt, the trade and industry secretary, said: "We are doing everything we can to ensure the partnership goes ahead."

The west Midlands is a key poll battleground. Although MG Rover now only employs just over 6,000 people at its Longbridge plant, the company remains an icon of the British motor industry and still retains a regional significance for component manufacturers.

The company has had a troubled history in recent years, passing from state ownership to the then British Aerospace and subsequently the German car maker BMW, before being bought for £10 by a consortium of west Midlands businessmen, led by John Towers, in 2000.

Labour had already invested considerable political capital in the China deal, including high-level talks between the chancellor and Chinese political leaders last month. Earlier, Tony Blair had written to the Chinese backing the venture.

Whitehall sources do not rule out a government announcement later this week.

"We are anxiously looking to see whether progress is being made," one source said last night. "It would be wrong to say it is all going wrong, but we are looking at how, and if, the situation can be rectified."

Ministers expect the talks between MG Rover and SAIC to come to a head at some point in the next fortnight.

"Things will come to a head one way or another in the next couple of weeks," one Whitehall source said. "Either it will reach an impasse, or it will be resolved."

Under the proposed deal, the Chinese company would put money into a joint venture to help MG Rover develop new models, in return for ownership rights to the UK company's more advanced technology.

Reports have suggested that SAIC would be prepared to invest £130m in the joint venture, but it was understood last night that the two sides have yet to reach agreement on the financial terms. Last night SAIC sources said the Chinese company had previously expressed its desire to complete the deal, and that it had the backing of the Beijing government. "And that remains the case."

MG Rover insisted that the deal remained on track. "There is no change in the numbers. There is no question of there being a problem with the deal. Clearly it is taking some time, but the legal process is an extremely complex and detailed one."

The two companies announced in June last year that they were seeking "a far-reaching strategic cooperation".

MG Rover desperately needs cash to refresh its ageing model range, while the Chinese are keen to build up their own car industry and break into overseas markets.

One problem for the govern ment is in identifying the extent to which the current problem in the negotiations is the result of last-minute brinkmanship as each company tries to extract the best terms.

Government sources admitted that Chinese interest in the deal appeared to have ebbed during the past month, and that they were now looking at what might happen if the deal failed to go ahead.
 

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Hmmmm well they seem to be correct on some aspects of the deal, in that its not called a takeover. But the article doesn't seem to be based on much, just that the Government are ready to help out if things crrumble (which they should anyway). And both key parties are stating its all going ahead. SO why is this front page news? Well they say it themselves- there's an election coming up and this is a Labour paper.


The rumours of a Whitehall statement this week are a little alarming though...
 

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Rover gets a tow from the election bandwagon
Impending poll gives Chinese upper hand

Wednesday March 30, 2005

Guardian

From Mrs Thatcher to Tony Blair, the giant Longbridge car plant has been a political thorn in any government's side. Everybody knows that, including the Shanghai Automotive Industrial Corporation. With an election little more than a month away and plenty of juicy West Midlands marginals up for grabs, the Chinese have MG Rover and the British government over a barrel.
SAIC always had the best cards in the joint venture negotiations, and those cards are even more valuable at the present political juncture. It is hardly surprising, then, to find that the Chinese are in no rush to complete the deal on any terms.

But the election may prove a godsend for Rover, too. It was always going to be the junior partner in any deal, since while the British were supplying the know-how, the Chinese were providing the hard cash. But the conjunction of the last stages of the negotiations and the imminence of polling day puts the government in a tricky position. Does it stick to its avowed free-market principles and let the two companies slug it out, even if that means risking the deal unravelling? Or does it come up with an eye-grabbing announcement that will secure the future of 6,000 jobs at Longbridge and thousands more in the car industry?

Forget economic dogma. Forget Brussels carping about illegal state aid. There's an election to be won.
 

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What I find amazing is that the press thing that the deal needs rescuing! Who's to say it needs the government to get involved when it could be going fine and just waiting for the final sign off.
 

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Lets hope this is not true - without the deal there is no MGR as customer confidence will evaporate completely
 

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There will be a deal - things have progressed to far for a deal not to be realised.
 

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why the hell does labour interfeer in everything????? i dont support the torys but at this rate i think i might, even the article said:
"Whitehall sources expressed concern that the Chinese have got cold feet about the deal since the chancellor, Gordon Brown, visited that country last month."
i would rarther that the deal struggled for a nother year than labour stick there big noses in just so they can get their stupid seats! Bloody politicians, always interfeering.
 

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I'm sure that if MG Rover needed government support, they would know how to ask for it. Again, another slow news day.... and yet again another 'source' comes along. In fact, if you re-read the story, it manages to fill several column inches without actually saying anything :irked:

Good to see anyhow that the British press are maintaining their proud tradition of not allowing an absence of fact to get in the way of a good news story ;)

John
 

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Think of the money that SAIC have rumoured to have already invested. If these figures are to be believed then between £67 and £200 million pounds have already been given to MGR for SAIC to have the rights to build the K series and certain current MGR models plus I guess they have already put some money towards the development of the RD/X60 or whatever the development code is now.

Think of the personnel time that SAIC have invested in this JV and not just senior people but designers, engineers plus purchasing people (remember some SAIC guys have apparently been working at Longbridge for the past few months and some MGR guys have been working at SAIC.)

Think of the time spend discussing and setting up the JV - around 9 months now.

They are now possibly less than 1 month from concluding and officially announcing the JV. They would need an extremely valid reason to pull out at this late stage. Whilst I I think SAIC may not have quite reached the point of no return, I do think it would be crazy for them to pull out now after they have invested so much time and money into the JV.
 

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Firstly, any political party will interfere with anything if they think the public percieve that they are doing something positive. In this case Blair is hoping that the constituents of Longbridge and the surrounding areas see him as helping MG-Rover survive. They all do this regardless of whether or not their actions will have a positive result, it will look as though Blair has tried, and as such gain him votes on May 5th.

Also, I cannot see MG-Rover being able to survive for another year without something happening, and Tony Blair most likely knows this, and if MGR were to look like going into recievership then he would most likely face calls to nationalise its assets, which of course he does not want to do. If this happens and they reach a half-hearted effort like Stephen Byers did with Railtrack PLC back in 2001 then I cant see a future for Longbridge.
 

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Just what is the point of this story ?

'SAIC expressed it's desire to complete the deal, and it had the backing of the Chinese Government......This remains the case'

MG Rover insisted the deal remains on track. 'There is no change in the numbers, there is no question of there being a problem with the deal'.

Nothing has changed at all since Mr Brown's China visit, the deal will be confirmed within the next 2 weeks and will most likely be announced on April 20th.

Both companies have been working together now for 6 months as if the deal had already been approved, so much has already been achieved and a new factory is also nearing completion in China.

This story is simply an attempt by the Guardian to improve the image of New Labour prior to the Election in May.
 

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The last thing MG-Rover need right now is the Government sticking their uninformed noses in to spoil the day. It was Governments messing around ever since the days of the British Motor Corporation back in the 1950s that caused this problem in the first place.

True, Austin-Morris were heading for disaster, but why did they have to drag Leyland down with them.

Blair should keep his nose out, and leave Longbridge to sort this deal out with Shanghai without intervention from Westminster, because the only intervention which would be useful right now would be a £500m subsidy - and that is not going to come along.
 

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I'm getting a bit sick of the whole thing now. Either SAIC and the Chinese gov't are ready to do a deal or not. If they are not then clearly MGR need to sort out plan B! MGR have already sold them the K series and brands, either they are ready to get with it or they are not. If not then MGR must work on plan B.
 

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If you were SAIC, and you were negotiating with MG-Rover...

OK, forget that. Objectively; SAIC doesn't need MG-Rover. SAIC are sitting on an automotive gold mine, China. MG-Rover is not. Furthermore, at the present time every smart automaker is trying to get into China. There are a lot of massive auto conglomerates with acres of idle tooling and thousands of engineers that can give SAIC what they need.

The problem is price. SAIC want control, and they want to pay as little as possible for it. Hence, MG-Rover, who have what SAIC need and are in the worst position of any company they could possibly deal with.

I have little doubt that the negotiations are proceeding with all the pleasantness for MG-Rover of being between the hammer and the anvil.

And though I am not really a quivering mass of credulity I find this story rather easy to believe.
 

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SAIC are sitting on an automotive gold mine, China.

Yes they are. But they are also currently tied in to a metal bashing arrangement whereby they produce and market cars on behalf of other people. Once the Chinese market opens up to the rest of the world and import restrictions are lifted... do these other people really need to continue with SAIC?

Will the Chinese people really reject a GM or Volkswagen product solely upon the basis that it is made by somebody else other than SAIC? Or will they be happy enough to trust the badge on the front of the car as being a guarantor of quality, dependability and reliability?

SAIC is certainly in a strong position at present, but in the longer term by soleley churning out other people's products (and the restrictions that come with such arrangements), it is also in a potentially very vulnerable position. As a well managed, forward thinking company, SAIC are smart enough to realise that, hence their discussions with MGR.

I wouldn't say MGR are between the hammer and the anvil. Admittedly, they are far from being in the position they would like to be, but they have plenty of strengths to play to and can offer on a plate what SAIC and virtually any other new car manufacturer needs most... recognised brands, proven technology, R&D and a worldwise distribution structure.

But back to the original post... this really does smack of desperation by the Government to be associated with a good news story at a time when their election campaign is in something of a mess and they are being regularly outmanoeuvred by their principal rivals. For that reason alone, perhaps the story signifies good news... as from experience Tony and his cronies aren't anwhere to be seen when doom and gloom pervades the skies.

John
 

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SAIc absolutely need MG Rover.

MG Rover are sat on a range of developed and advanced car platforms, derived from the 75 and able to fill the medium, upper medium and large car segments. The work is complete, they are also sat on a decent range of engines, diesel and petrol.

No other manufacturer is going to allow SAIC access to that kind of development, and for SAIC to buy old tooling and employ engineers, it's going to take them years to develop a platform and car range that will fill anything like their need to be a global giant.

Make no mistake, MG Rover may be weak, they may be on the brink, but for SAIC they are their only hope of becoming the global player they so desire in the near future.

SAIC know this as well as MG Rover.
 

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Speculation, assumption, election! Though with friends like the Guardian, Labour doesn't need enemies!


MGCrazeee said

Think of the money that SAIC have rumoured to have already invested. If these figures are to be believed then between £67 and £200 million pounds have already been given to MGR for SAIC to have the rights to build the K series and certain current MGR models plus I guess they have already put some money towards the development of the RD/X60 or whatever the development code is now.

Think of the personnel time that SAIC have invested in this JV and not just senior people but designers, engineers plus purchasing people


Good points. If the deal fell through now, MGR would asurely come out of it better, with money and investment already there. I really can't see SAIC getting anywhere without MGR, and can't see them affording FIAT let along someone bigger or better off. I don't actually think SAIC could afford to take MGR over unless PVH wanted to sell it off cheap, let alone the fact that PVH can decide whether or not to sell out to SAIC.

Both partners need each other, and (I hope) MGR can survive without.



smosquito said

OK, forget that. Objectively; SAIC doesn't need MG-Rover. SAIC are sitting on an automotive gold mine, China. MG-Rover is not. Furthermore, at the present time every smart automaker is trying to get into China. There are a lot of massive auto conglomerates with acres of idle tooling and thousands of engineers that can give SAIC what they need.

The problem is price. SAIC want control, and they want to pay as little as possible for it. Hence, MG-Rover, who have what SAIC need and are in the worst position of any company they could possibly deal with.

I have little doubt that the negotiations are proceeding with all the pleasantness for MG-Rover of being between the hammer and the anvil.

And though I am not really a quivering mass of credulity I find this story rather easy to believe.
You are assuming an awful lot, IMO incorrectly. There are problems with the Chinese market - things are not exactly a gold rush - but the future shows a lot of potential. However, it's no good having the market if you don't have the products, and that's where MGR (and Western technology) comes in. The problem with the logic you are using, and that of others, particularly the press, is that you assume SAIC wants to get control of MGR yet think there is nothing they need. Why would they bother doing any sort of deal unless they needed (or at least wanted badly) something that MGR has or can offer. Yet MGR is a private company. If MGR stick to their guns and call the shots, they can make or break the deal. Think about it. Why bother to keep MGR going if all that's going to happen is it gets bought out and closed down? As this is not what is going to happen, MGR can hold out for what they want (within reason). Meanwhile, why would SAIC want control of MGR if MGR has nothing to offer? But then you point out the opposite! So now SAIC is in the stronger position because MGR does have something SAIC need? I'm confused. :confused:

The alternative for SAIC? There are no other manufacturers willing to share technology, and if there were, they are no more going to offer SAIC control of them than MGR will. If all SAIC needed to do was get some factory space, why bother doing this deal in the first place. They have already had to give Nanjing a cut of allegedly their part of the deal just to get some production space, so obviously it ain't that easy for SAIC.

The alternative for MGR? Well we don't know if they will go bust in 6 months do we? It's called brinkmanship, but if they did, it would be of no benefit to SAIC, so I don't see SAIC waiting for them to go to the wall.

Now, it maybe that SAIC only want the existing IP, and this deal is all a sham, but that will only benefit MGR. MGR get K-series built under liscense, or money for out-of-date IP. Sounds good to me! However, I would imagine the working relationship is going pretty well and a rather more equal and permanent partnership is in the offing. Certainly haven't heard any horror stories from MGR employees...
 

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Sent this to the 'Today' Programme, Radio 4:


Today's business section involved an exchange between 'Greg' and his interviewee which will be very detrimental to listerners' confidence in the company.

Yet the speaker was hardly an expert on the deal, didn't seem to know much about it, talking about a trip Gordon Brown made to China WEEKS ago. He clearly had no idea of the widely touted date of April 20th for the announcement of the final deal.

In fact, asking this interviewee was the equivalent of asking some 'bloke down the pub'.

This kind of reporting, based on inuendo, guesswork, and wild speculation - a kind of journalistic terrorism - is infuriating because you are completely unaccountable for the unforeseen outcomes of your idle gossip and chit-chat.

Remember, MG Rover is a private company. Confidence is very important right now. You have a duty to inform, but that doesn't extend to poorly researched speculation.

MG Rover = JOBS, JOBS, JOBS.
BBC = TAXES, TAXES, TAXES.

What do you drive, by the way?

Regrds,

Ian


And this one for The Guardian:

Dear Sir,

Congratulations to your journalist Ian Grifiths on his recent award for his journalism, particularly for his coverage of MG Rover.

Let's hope this barrage of negative publicity that you have helped sustain has not destabilised the company and its deal with SAIC. As journalists, you have the potential for making self- fulfilling prophecies, putting the cart before the horse, or in this case the car before the driver.

Let's hope Mr. Grifiths will share his gong with the people whose livelihoods are affected and who, err... probably don't read this newspaper.

Yours Roverly,
Ian
 

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It seems to me the govt are damned if they do and damned if they don't. If, god forbid, the deal collapses in a couple of weeks I can see everyone complaining 'why didn't the govt do something weeks ago'. I'd prefer they do something now to ensure the deal gets done. If I were in SAIC's shoes I'd do the same, they know they are the stronger partner, an election is looming and a bit of brinksmanship can wring a few concessions out of the govt (perhaps about gauranteeing or underwriting some of MGRs liabilities).
 
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