Rover powers from strength to strength

A year along the road, BMW has radical plans, writes Russell Hotten

A year ago this week, politicians were outraged at the withering away of Britain's industrial base, unions were crying sell-out and the Japanese were muttering darkly of treachery and revenge.

Few industrial issues have managed to inflame such passions, but BMW's £800m takeover of Rover Group from British Aerospace was as controversial as they come.

Yet, as Rover executives sit down to a special lunch today to mark the first anniversary of the takeover, it all looks rather different.

Rover continues to go from strength to strength, with Land Rover excelling all expectations. Although the volume car business is still loss-making, the company is arguably Europe's most efficient car producer. It is hailed by politicians of all sides as an example of successful British industry.

The unions have won a pace-setting pay rise, and a new model development programme will mean Rover has created 3,000 jobs in a little more than two years. Even at Honda, whose 14-year collaboration and influence is behind Rover's resurgence, pragmatism overcame pique. Although the cross- shareholdings have been unwound, the two companies continue to work very closely.

Mindful of the controversy, BMW has trod warily over the past 12 months, preferring to listen and learn rather than make strategic decisions. But 1995 will be a crucial year for Rover, which is launching new models and must decide on the replacement for old ones.

The German company has radical plans to strengthen the Rover brand name and double sales to about a million.

A £1.2bn five-year investment programme, agreed under BAe, will now almost certainly reach about £2bn by the end of the century.

Arthur Maher, a former chief economist at Rover and now a manager at DRI Consulting, believes the takeover is working because the UK car company already saw BMW as a role model.

"To a great extent, BMW's plans are just an extension of what Rover wanted to do itself,'' he said. "Under Graham Day, Rover aspired to be a sort of BMW, but it was owned by British Aerospace, which did not really understand the car business. That is why the BMW takeover was greeted so positively by Rover management.''

Bernd Pischetsrieder, BMW's chairman, says he intends to take Rover up- market, producing more exclusive models and reducing dependency on the domestic market. This is just what Rover executives were talking about in the 1980s, but they did not have the finances and technology that came with the BMW takeover.

John Towers, Rover's chief executive, will not talk about which products and plans are on the drawing board, other than to say: "In a world that sells very good ordinary cars we have got to create extraordinary cars."

Replacements for the 200/400 series will be unveiled this year, and a new small car to replace the Metro is planned. But Rover has still to decide on replacements for the 800 and 600 series, and more niche products, such as the MG sports car, launched at the Geneva motor show last week, are said to be in the pipeline. Land Rover's sales are achieving record levels and it is close to agreeing production of a smaller Discovery model.

BMW may also get Rover to re-think what to do with the Mini. With Ford and General Motors planning economical city cars, it must be tempting for Rover to remain in this sector of the market. There is even rumour of a return to the important American market, abandoned four years ago after the flop of the Sterling marque.

All this means Rover's manufacturing facilities will need to become more flexible. The introduction of BMW's logistics expertise will ensure this, but it will take time to alter the batch-production system introduced by Honda.

The long-term strategy is to reduce Rover's dependency on the UK, where about four out of every five of its cars are sold. That will mean strengthening the company's position in traditionally weak European markets. Although Land Rover can tap into BMW's distribution network, Mr Towers said any product and marketing programmes for the car business would be kept clearly separate from BMW. "The identities will be preserved. Blurring the distinctions would be damaging for both marques," he said.

Mr Towers said Rover's sales are increasing in BMW strongholds such as Austria, Switzerland and Germany, where Rover sold 13,000 cars last year in a market of 3.5 million. "But there is no distribution link. The sales increase is because the BMW takeover has given us a level of exposure that we would never have got."

Such concerns about blurring identities could mean a delay for replacement of the Rover 800, as it would probably be based on a BMW 5-series platform. Analysts believe BMW will therefore opt for a new 600 series as its first big strategic decision on Rover's future.

It was said at the time of the takeover that BMW was only really interested in the profitable Land Rover business. But Mr Pischetsrieder's comments should be enough to refute such suggestions.

If they are not enough, look at the figures. Rover's output rose 16 per cent last year to 478,000 vehicles, its best performance since 1989. Demand in mainland Europe rose 16 per cent, against only 3 per cent in Britain. There is no question that the future of the group, not just Land Rover, is more secure than for many years.

Increasingly it looks as though the only damage inflicted by the BMW takeover was to BAe's balance sheet - because Rover was sold too cheap.