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Was MGR Profitable Under Honda?

10K views 109 replies 26 participants last post by  DarkOne 
#1 ·
I read this at http://www.bloomberg.com/apps/news?pid=20601101&sid=a4beOTWxpb3c&refer=japan

BMW made what Raab calls the biggest error in its corporate history in 1994, when it bought Britain's Rover Group for 800 million pounds ($1.6 billion) with a notion to enter the mass market. He says there was a belief in the industry at the time that size mattered -- that carmakers considered too small would be bought out and would have too few resources for research and development.

Rover was a money-losing operation when BMW acquired it and remained so for the years BMW owned it. In 1999, it was the main contributor to BMW's $1 billion loss, the biggest in the company's history. In 2000, BMW threw in the towel and sold Rover for 10 pounds.


I thought it may have been making a little money or breaking even at least but I'm not sure.
 
#4 ·
I read this at http://www.bloomberg.com/apps/news?pid=20601101&sid=a4beOTWxpb3c&refer=japan

BMW made what Raab calls the biggest error in its corporate history in 1994, when it bought Britain's Rover Group for 800 million pounds ($1.6 billion) with a notion to enter the mass market. He says there was a belief in the industry at the time that size mattered -- that carmakers considered too small would be bought out and would have too few resources for research and development.

Rover was a money-losing operation when BMW acquired it and remained so for the years BMW owned it. In 1999, it was the main contributor to BMW's $1 billion loss, the biggest in the company's history. In 2000, BMW threw in the towel and sold Rover for 10 pounds.


I thought it may have been making a little money or breaking even at least but I'm not sure.
CORRECTION: It sold the asset stripped remnants of the former Rover Group for that tenner. These remnants latterly became known as MG-Rover. I believe Land Rover asset was sold by BMW to Ford for £1.8 Billion and amongst other things, the key 'Mini' asset was retained by them.

Despite lack of real interest let alone decent investment by BAe during their stweardship, the former Rover Group enjoyed limited success in the few years prior to the BMW Takeover.
.
 
#5 ·
Despite lack of real interest let alone decent investment by BAe during their stewardship, the former Rover Group enjoyed limited success in the few years prior to the BMW Takeover.
BAE should be ashamed at their cynical attitude to Rover.
The comment "BMW made what Raab calls the biggest error in its corporate history in 1994, when it bought Britain's Rover Group" ignores the fact that the Honda colaboration was getting Rover in the right direction and that Rover wasn't an error. Not checking that Honda was happy and would continue with it's arrangement with Rover was the biggest error.
The comment "that carmakers considered too small would be bought out and would have too few resources for research and development" paniced them into a sale without due dilligence. Without the cost savings sharing platforms etc with Honda, BMW had to act to get another sharing programme under way and it didn't. Why didn't they share BMW platforms and take MGR rear wheel drive? Wouldn't Fiat have done a sharing deal? The lack of action indicates there were divisions and lack of unity within BMW of the direction they ought to be taking. I wonder why these journalists simplistically assume all the problems were with MGR and not with BMW management decisions taken after purchase.
 
#6 ·
If I recall correctly BAe bought Rover (although initially they were only after Land Rover) to get their cash flow. BAe traditional cash flow was sporadic on completion of big aero orders...so buying something like Rover gave them an all round cash flow to level out the peaks and troughs. I'm sure it was breaking even on average over that time but it had a liking for development budgets that of course was also needed elsewhere in BAe.
 
#28 ·
For the small and medium cars the future was the NG engines.

The Chrysler lump was because of the intended tie up with Chrysler. A toe dipped in the water rather than a full on agreement, but of course Daimler Benz came along and the rest is history.

The R50 platform used for the MINI may only have been a temporary measure. Though it was intended to spawn other models, they were all niche/retro like the MINI, e.g. New Metro, MG'G' and MG coupe. The platform would have been considered as BMW's first foray into a FWD platform (work predated the R40 (75) platform and less money was spent on development). Whatever, the R50 wasn't designed to take the NG engines AFAIK, and BMW opted for the Chrysler engine over the K-series. That might have been due to the short life span the K-series was to have had under BMW, but the same could have been argued for the R40 (75) platform. Of course the R50 has been tweeked and resized a bit - but not replaced by the R30 platform as suggested - and the Chrysler engine dropped.

I have read that the R30 program was K-series compatable and the various models were intended to be sold with NG and K-series engines alongside each other. If it's the case that the R30/40 platforms were intended for both engines then BMW were either looking at phasing the K-series out over a longer period of time than a decade, or condsidering the K's and NG's as having something different to offer.



The governemnt pressured BAE to take Rover over, but I guess they found a useful reason or two to buy Rover (cashflow or asset stripping). Where BAE clearly failed Rover was in not underwriting or paying for development/investment. Rover managed to get by on a joint program with Honda but had to drop most of their own independent program which didn't involve Honda except in a secondary way (i.e. AR6, R6X, AR16/17). There was the R3 and the various Land Rover projects, and the Honda-Rover program for a while at least was fairly equal - R200/400, early 600 program, ongong 800 and Metro platform development, the City/Jazz program.

Late on BAE seemed to really stop investment in Rover, which is a shame, because it certainly wasn't a particularly loss-making group, and had as much to gain out of the JV with Honda as Honda has had. Honda is in fact the proof that Rover had a future, but sadly the investment wasn't there.

The only significant difference between Rover and Honda was Rover's lack of presence in certain markets. This was far more significant than the sales levels, which were quite good for Rover up until the mid/late 90's and had stabilised anout 1985.
 
#11 ·
I think the new Honda Legend would have made a very nice Rover and would have sold well.

Honda would also have had access to advanced diesel and technology long before they were able to release versions of their own and of course, there would also have been Land Rover and MG; a VTEC powered MGF/TF would have been smashing, or even better a Honda-engineered VVC. :)
 
#19 ·
I believe Honda had 10% of Rover and BAe the rest. BAe went to Honda and offered them the lot. Most of MGR sales were in the UK and Honda was concerned the British public would be put off by a foreign owner* so offered to take the stake up to 20%. BAe, wanting to sell them went to BMW. Berndt P was keen but not so much the Quandts, the owners. Berndt P prevailed and they took the 90%. Honda didn't want BMW in the picture left, taking their rear drive platforms with them. This left BMW with a big problem. (I read that Honda don't do deals with other car companies but Mr Honda was an anglophile, so made an exception with Rover. Also, BAe is not in the automotive industry, so was acceptable as a partner. However, BMW isn't Anglo, and Honda technologies in Rovers would be open for BMW to see). BMW's subsequent dithering and internal wrangling over what to do with Rover was BMW's problem. Rover wasn't the English patient BMW claimed it was.

*If only Honda had known the British public wouldn't have given a toss. When Peugeot recently closed Ryton have the UK public reacted? Absolutely. By buying more of them as Peugeot market share has climbed since.
 
#16 ·
Rover was modestly profitable when BMW took over, but it was also a loss-maker.

To explain this seeming paradox: Rover was profitable according to the accounting system the company had always used, but then BMW adopted its accounting methods for the Viking under which Rover was considered to have made a small loss.

I don't think there was necessarily anything underhand in this, just that the Blue Propellor wanted to standardise its management and accounting procedures.

Perhaps it only goes to show that accountancy is a rum old business - one I do not want to know anything about as a fairly sane human being - and you can pretty much make the balance sheet show what you want if you are so minded.

Enron, anyone?

Scenario time:

You have a gun with only one bullet. Who do you shoot: the accountant, the lawyer, the politician, the journalist, or Peter York?
 
#18 ·
Originally Posted by king arthur: There was in fact an approach made to Chrysler with a view to Rover sharing components with Chrysler vehicles. That plan was scuppered by Daimler buying out, sorry merging with, Chrysler. This is the reason why the Mini ended up with the distinctly unimpressive Chrysler 1.6 engine.
Never heard that before, but it does go a long way toward explaining why BMW went all the way to Chrysler Brasil for the MINI's engines. A shame that alliance wasn't pursued, as it probably would have worked out.*



*At least for Chrysler anyway. Selling the 75 as a Chrysler would have been amazing, selling the PT Cruiser as a Rover would not.
 
#20 ·
Honda had 20% of Rover and Rover had 20% of Honda's UK operations. It is often quoted that BMW bought Rover for £800m, which is in fact incorrect - they had to buy out Honda's share for a further £200m so ended up paying £1bn for Rover.

Before BAe sold to BMW, they approached Honda and Honda offered to increase their stake to 49% (or was it 45%, I can't quite remember).
 
#25 ·
This article is for most part non-sense, starting with the title " ...Threatened by Lexus, Stagnant Margins".

"... with the above-mentioned one-off gain of euro 375 million on the exchangeable bond making a substantial contribution to the previous year’s high level. Excluding exceptional items, group earnings fell by only 11.7%. This decrease was attributable to the weakness of the US dollar and the Japanese yen, combined with a succession of model changes and ensuing start-up costs."

That's what they forgot to mention and replaced with Lexus.


RG was probably profitable before the BMW take over, but then again it had no decent capital investment and was overreliant on Honda so that's what keept it out of the red for a while (along with the british accounting practices).


As for the BMW asset stripping that's non-sense.

BMW gave Rover 625 mil. euros of capital investment in 1999 alone, along with a 3.150 bil. euros in write off/restructuring/special (extraordianry) charge. And Rover had a loss of ~1 billion that year.

And let's not forget the capital investment and buy out money from 1994 to 1999.

Thank you Rover, but no thanks !


Not to mention that under BMW, LR/RR sales went on from 90k to 178k and MG from 773 (yes just 773) to 11k and was suposed to get the (sporty not spiritual) MINI platform.
 
#30 · (Edited)
Not to mention that under BMW, LR/RR sales went on from 90k to 178k and MG from 773 (yes just 773) to 11k and was suposed to get the (sporty not spiritual) MINI platform.
773? That would be the RV8 which was just a halo car for the MG relaunch proper, which happened with the MGF. Devloped before the BMW takeover and for the same amount of money BMW spent on developing the 3-series' ..... doors.

I'm also not sure why you think the spirituals would not have been sporty. They would have been mid-engined with wishbones all round. Sounds sportier than FWD and struts up front to me.
 
#33 ·
Don't forget Arlington Securities...

So, as I remember it, Rover Group WAS profitable with Honda, and Honda/Rover did more than just the platform sharing that is given as the popularist view in the UK press.

The LR Discovery was sold as the Honda Crossroad and conversely the Accord (the Honda version, not the 600) was built by Honda and badged up as a Rover for some markets.

On top of that, BAe cleverly transferred assets from Rover Group into another company, Arlington Securities.

The biggest such transfer happened after Honda had paid for the kitting out of the ex-Pressed Steel Fisher body plant at Cowley as the new state of the art Honda/Rover production facility. Honda paid for the work to be done at Cowley as it was/is just up the road from Swindon, which at that time was Honda's UK engine plant, and also their QA site - all Hondas built by Rover went through Swindon before going to dealers. My guess is that Honda probably saw a time in the future when Cowley would become a Honda, rather than a Rover plant. Of course, ironically it's now BMW's Plant Oxford.

The remainder of Cowley - William Morris's original plant was across the road and was transferred to Arlington Securities, BAe's inhouse property development arm. BAe then cleared and sold the site for quite a few millions of pounds.

So, one question remains - why didn't BAe do the same at Longbridge, where there was so much land?

The answer is simple - Honda wouldn't/didn't pay for the modernisation of Longbridge... and BAe wouldn't either. Ironically BMW came along and repeated exactly the same mistake and the P4 started doing it far too late.
 
#34 ·
What markets was the Accord rebadged as a Rover (Other than 600) Lord Minty, as I don't remember that.

I remember the Honda Quintet being rebadged as a Rover 400, and I remember the Rover 200 Turbo Diesel being rebadged as the Honda Concerto TD.
 
#35 ·
The Accord went under the name of Honda Ascot (a Rover Metro name!), the Honda Ascot Innova, Rover Innova and Honda Rafaga. I'm not sure where the Rover Innova was sold (probably Japan), but there is at least one in the UK.

Here's a pic of a Honda Ascot - spot the Rover-esque grille:



More pics here

THe Honda Rafaga was more like a 600, see here, and even had the rear side window in the rear door - on the Accord/Ascot/Innova it was part of the body, not the door.

And of course here is the Honda Crossroad... look familiar? Makes those original Discovery TV ads with the Japanese blokes looking at it, a bit ironic...
 
#38 ·
Around 1993 and prior to the BMW takeover, I remember waiting on a South London Railway station when several long freight trains went through heading for the Channel Tunnel and mainland Europe. These frieght trains were dedicated car transporters and there were possibly hundreds of Rover product of all shapes and sizes on those trains. One train was held at a red signal to allow a Eurostar priority so I looked at the tickets and labels on the railway wagons and car windows. All those Rovers were headed for Italy.

So, the land of the Scarlet Ferrari certainly liked Rover product back then... there's even one or two well cared for enthusiast MG Montego Turbos over there too:



This Italian enthusiast obviously has impeccable taste ... ;) He also has another one in Moonraker Blue... I like the Silver Leaf examples though ...:)
 
#43 ·
It's a pity Berndt P doesn't join the forum to clear up some of this. I'd like his take on what he expected in acquiring Rover. I think he's a decent bloke and wanted the best for Rover. The Quandts apparently don't give interviews (so we won't here from them :)) and I don't think they ever really wanted Rover as part of their family business. Rover's demise won't have cost them any lost sleep IMO. I reckon Berndt P felt differently though.
In hindsight, the Alchemy bid for Rover with 80k MGs pa was a more realistic bid than the gang of four, although at the time, I liked their volume option. It just wasn't realistic. There are so many 'if onlys' in this saga. Whenever I walk past a Rover/MG, I feel a little sad it's all gone. (However, with the way the Chinese going, other car brands may be under threat in the not too distant future). That's life.
 
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