Howe puts foot down on Rover's road to recovery

Brilliance cast a shadow but the car chief aims to ram his critics' words down their throats

Kevin Howe has just returned from Poonah to a cold, snowy Birmingham. The chirpy, youth- ful chief executive of MG Rover took a team of his engineers to put the finishing touches to an Anglicised version of the Indica, a new supermini made by Indian conglomerate Tata Engineering, to be launched by the British car maker in the UK in the next few weeks.

Being Brummies, they thought they'd see how local curries compared to their own local cuisine, the balti. Though the tandooris were tempting, they gave some of the Rover team a bad case of Bombay belly. Howe must be praying the new car doesn't cause similar indigestion.

The Rover Indica will be the first totally new model launched by Howe and his team since they bought the ailing car maker from BMW for just £10 nearly three years ago. The model – which will compete with the likes of the Ford Ka, VW Lupo or, dare one say, BMW's Mini – has been dubbed the "Rover 15" or the "Rover Metro" by the press.

"I'm not going to reveal the name, but it'll be neither of those," Howe laughs.

Be it the Metro, the 15 or the Balti, the new supermini will be vital if Rover is to stay on the road to recovery mapped out when a team of Midlands businessmen, led by motor mogul John Towers, took it over in May 2000. Then the car maker was losing some £780m a year. Losses were cut to "only" £187m in 2001, and when the company reveals its 2002 figures, probably next month, this deficit will be below £100m. Howe has promised that Rover will be making sustainable profits by 2005.

However, despite an aggressive upgrading of the products, which has largely consisted of putting ever more powerful engines in saloon cars and branding them MG, sales have been disappointing. Last year Rover's audited sales were just 143,745, down 10.4 per cent from 2001. This was largely due to a collapse in sales in mainland Europe, where Howe says the group has been hit by the strength of sterling relative to the euro, which wiped out Rover's profit margins on continental sales.

"We could have sold more cars but it would have lost us money," claims the 41-year-old, who has been in the industry for 25 years. "What we did was constrain volumes to the minimum level needed to sustain our dealer network."

The disappointment in Europe has led industry experts, such as Professor Garel Rhys of Cardiff University Business School, to say that Rover is as much as nine months behind schedule. "I can't see how anyone can say that," says Howe. "You can't put figures of months to this."

When Rover does come out with its 2002 figures, they will show that the position of the Longbridge car maker is somewhere between where Howe and co wanted it to be and where the industry pessimists fear it is. In the past few months all sorts of dreadful stories have abounded: Rover cannot pay its suppliers (not true); Rover is being sued for £58m by a former business partner (true, but Howe appears unconcerned); Rover's partner in China is in all sorts of trouble, with its former chairman a fugitive from justice (true, but again Howe is relaxed); and Rover's unions have rejected a pay deal (again true, but this time Howe is more perplexed than relaxed). It may be bravado, but the Rover chief executive seems to think things are moving in the company's favour.

For a start the exchange rate is improving. Then there is the European Union's move to reform the car-selling market, which Howe thinks will create "more opportunities than problems for a small manufacturer like us". And there is the good press Rover has received for the launch of some of its high-powered MG saloons, notably the MG SV supercar, which can travel at some 220mph, was the star of October's Birmingham Motor Show and led MG Rover to win the accolade "Achievement of the Year" from motor magazine Autocar.

"We're pretty confident we'll be living up to our expectations," says Howe.

Rover's path to profitability has taken some surprising turns. In an attempt to find partners that will pay for the next stage in its development, Howe has signed a deal not only with Tata in India but also with the wonderfully named China Brilliance, a bus maker from Shanghai, which has paid Rover an undis- closed sum to develop a new car that it will make in China. But barely was the ink dry on the contract when Yan Rong, the company's chairman, was charged with fraud and fled to Los Angeles. The local provincial government has taken control of Brilliance and is currently assessing whether the deal should go ahead.

"We still have an arrangement in place," says Howe. "We want to make sure that their structural changes mean that they can fulfil their side of the bargain. But other people have shown an interest – the vultures are hovering over China Brilliance."

A solution has to be found in the next few months, but if the worst comes to the worst, Rover will merely pocket its development fee and walk away.

Meanwhile, Howe has yet another iron in the fire, having struck a deal to take a stake in a bankrupt former Daewoo car plant in Warsaw. Under the deal, Rover gets that interest in the factory in exchange for managing it. The idea is to manufacture a cheap and cheerful version of the Rover 45 for the eastern European market. Unions in Britain have expressed concerns about the plans, but Howe has promised that no production will be moved from Longbridge.

"Taking a factory that nobody wants and making money out of it – that's one of our specialities," jokes Howe.

The Indian, Chinese and Polish ventures may seem like a diversion, but MG Rover is, by Howe's own admission, "a minnow" in a motor industry dominated by giants such as Ford, DaimlerChrysler and GM. It needs these deals to get better terms from its suppliers and to improve its margins.

It may be bravado from a man who describes his interests as "fine wine, sport and fast cars", but Howe appears to be positive when all around him fear the worst. His MG Rover has certainly lasted much longer than most people – notably the unsuccessful under-bidder for Longbridge, Jon Moulton's Alchemy Partners – ever predicted.

Will Howe have the last laugh come 2005? He's got his foot to the floor trying to get there.