Troubled MG Rover in drive to rebut critics

Car maker's absence from this year's Motor Show has stunned the industry and fuelled rumours of a crisis

When the International Motor Show opens at Birmingham's National Exhibition Centre today there will be one notable absentee. MG Rover, the only remaining British-owned volume car maker, will not be there. The company's non-appearance just five months after it was rescued from closure has created the impression that, far from leaving its troubles behind, MG Rover is once again driving deep into difficulty.

When the International Motor Show opens at Birmingham's National Exhibition Centre today there will be one notable absentee. MG Rover, the only remaining British-owned volume car maker, will not be there. The company's non-appearance just five months after it was rescued from closure has created the impression that, far from leaving its troubles behind, MG Rover is once again driving deep into difficulty.

Garel Rhys, professor of motor industry economics at Cardiff University, echoes the view of many when he describes MG Rover's decision as a "tactical error". Professor Rhys adds: "There are a lot of people in the West Midlands who have helped keep Rover afloat when the great British public didn't give a damn for it. Appearing at the show would have been a way of saying thank you to those people and reminding the rest of the world that it still exists."

It would also have been a useful platform from which to refute the growing number of damaging rumours being spread about the company since BMW sold it to the Phoenix consortium in May for £10. That its board is split. That it is running short of money to pay suppliers. That its share of the UK market is in terminal decline. That is is being forced to scale back its production targets. That it wants to sell out to the first foreign car company that comes along.

In recognition of the damage being done by these claims, and the company's failure to rebuff them, MG Rover has been forced to hire a firm of City public relations advisers, Maitland Consultancy, to put its case. The first fruits of this came at the weekend when MG Rover rushed out a statement denying reports that its non-executive directors were calling for the removal of the chairman John Towers, the man who led the rescue of the business.

Nick Stephenson, MG Rover's deputy chairman, described the reports as "mischevious and complete inventions" which neverthless were having an unsettling effect on morale among the 5,500-strong workforce and dealer network.

"Actually, things are going rather well," says Mr Stephenson. "We have made very significant progress and we are delivering on our business plan." Production of the flagship Rover 75 has been relocated from Oxford to Longbridge, the workforce has been reduced by 1,000 without much pain, and the company is on target to launch both an estate version of the 75 and a distinctive and sporty range of MG models next year. Investment so far has reached about £100m and MG Rover expects to have signed off the completion accounts with BMW before the end of the year, so that it is a properly constituted company with a proper balance sheet.

Although the new MG's will be based on the same platform as the 25 and 45 series, Mr Stephenson promises they will not just be facelifts of existing models with a different badge pinned to the bonnet. "What we are doing is relaunching the MG brand in a way that will give it broad appeal. These cars will be very different in character, appearance and appeal to the current Rover range. They will compete with lower priced BMWs and Alfas and sporty derivatives of models such as the Golf GTi."

Mr Stephenson adds that it firmly remains MG Rover's plan to produce 200,000 cars next year. Of these, 50,000 will be Rover 75s, a further 40,000 will be MGs and the remainder will be 25s and 45s. With about half of Longbridge's output destined for export markets, that means the company will have to capture 100,000 UK sales or about 5 per cent of the market. Last month its market share slipped to a low of 3.7 per cent.

Professor Rhys thinks that the talk of a crisis at MG Rover has been vastly overdone. BMW is reckoned to have given MG Rover a dowry worth around £500m and its cash flow remains strong because in the early months it was selling cars that had already been made by BMW.

But Professor Rhys accepts that MG Rover's current low level of sales is a concern. "They haven't got problems provided they can get people back into the showrooms and get their share of the market back up above 5 per cent. If it is still where it is now come January or February, then MG Rover is in trouble."

The bigger challenge for the company is to find a partner that can help fund the development of a new medium-sized car and assure MG Rover's future. It is well known that MG Rover has held talks with Proton, the Malaysian car manufacturer. What is less clear is whether Proton wants to buy a stake or is just interested in a technical alliance, or indeed, whether it is a credible partner for MG Rover at all.

Mr Stephenson refuses to comment on the identity of the company with which MG Rover has held talks but insists that no discussions have taken place with anyone about selling a stake in the business. He adds that a search for a partner will begin in earnest next spring with the aim of reaching a deal by the end of the year. He also says that a collaborative deal could just as easily be with a large component producer such as Delphi or Visteon as with a a car manufacturer." We have always made it clear that collaboration with another manufacturer would be highly desirable but it is not essential to our survival," insists Mr Stephenson.

Others doubt whether MG Rover can realistically go it alone. Professor Rhys says: "You cannot keep a company making just 200,000 to 250,000 cars independent, it is just not possible. MG Rover has to get what it can out of the existing model range, develop some credibility and a platform strategy and them look for someone to buy it."

But who needs a manufacturing plant like Longbridge when the world motor industry can already produce five cars for every four it sells? It all depends on whether the MG brand can be made attractive enough to tempt the likes of Volkswagen, General Motors, DaimlerChrysler, Peugeot or even Fiat to want to add it to their existing stables.

Mr Towers is holidaying in Portugal at present and does not return to Birmingham for another ten days. He will have plenty to occupy him when he gets back.