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World: Rover-BMW Split Goes Against Global Trend

  • Breffni O'Rourke

Germany's BMW car company has decided to drop its British subsidiary Rover, while Italy's giant Fiat firm is to ally itself with the U.S.'s General Motors. RFE/RL correspondent Breffni O'Rourke looks at what this week's moves mean for the auto industry -- and for ordinary car buyers.

Prague, 17 March 2000 (RFE/RL) -- The announcement this week that the German luxury car maker BMW is disposing of its British subsidiary Rover has sent shock waves through the European automotive industry.

The Munich-based BMW concern urgently needs to cut itself loose from Rover -- which is now losing more than $1 billion a year -- or risk getting dragged down itself. As a result, the jobs of some 9,000 British workers at Rover's main plant at Longbridge, in central England, are now in jeopardy, as are many thousands more in auto-parts supply companies.

BMW is likely to keep the highly successful Land Rover division, which makes renowned cross-country vehicles, and also the manufacturing rights to Rover's popular Mini sedan.

Six years ago, when BMW took over Rover, the move was seen as a bold stroke in keeping with a growing trend toward the globalization of the automotive industry. But in hindsight, it now seems to have been quite risky.

Rover had once been a famous name in autos, producing conservative semi-luxury cars particularly favored by doctors and other members of the British middle class. But by the mid-1990s, Rovers had dwindled to being little more than locally assembled Japanese models. Mechanical parts and most body sections were purchased from Japan's Honda company, and the cars were given a distinctive British touch by adding luxury interiors.

Ironically, that approach was cheap for Rover and quite successful. Then the Germans came along, making a purchase offer that outdid a rival bid by Honda. The Japanese retreated, defeated and angry. When Rover's contracts for Honda parts began to expire, BMW was left with the need to develop new models from scratch -- a hugely expensive exercise, especially since productivity at Longbridge fell well below world norms.

Rover's mounting losses were the main factor costing former BMW boss Bernd Pischetsrieder his job last year. A difficult situation with another BMW purchase, Britian's top-of-the-line luxury Rolls-Royce, did not help, either. In competition with the Volkswagen group to buy Rolls-Royce, BMW secured the name, but the actual factory ended up in Volkswagen's possession -- leaving BMW once again with grave problems of model development.

But analysts see the prospective parting of the ways between BMW and Rover as only a small setback in the continuing consolidation of the world motor industry. Recent major moves towards integration include French Renault's effective takeover of Japan's Nissan, and the strategic alliance between Italy's Fiat and the U.S.'s General Motors.

British-based auto industry analyst Mark Bursa (of the "Financial Times'" subsidiary "Automotive Emerging Markets") sees the trend as relentless, but as not necessarily limiting buyers' choices:

"While ownership of the car companies is going to consolidate down to maybe eight or nine global firms, these global firms will each control a portfolio of different brands, offering different kinds of propositions to the customer."

Bursa sees the new alliance between Fiat -- which makes mainly small and medium-size cars -- and America's giant manufacturer GM as unexpected. In forming alliances, companies usually look for ways to complement their ranges, but in the case of Fiat, its cars directly compete with those of GM's German-made brand, Opel.

In any event, the announced "strategic link" between Fiat and GM -- cooperation that falls short of a merger -- allows the family-owned Italian company to continue independently while strengthening its hand through more efficient production. As Bursa says, Fiat can now share, for example, future auto base platforms with Opel:

"It means that something like the [Opel] Corsa and the [Fiat] Punto -- which are similar-size cars and head-to-head competitors -- could in future be developed off one single platform, they could use one range of engines. So you suddenly get a large economy of scale there; these are both high-volume cars in Europe."

Looking to the future, Bursa sees a possible tie-up coming between France's Peugeot-Citroen company -- seen as vulnerable on world markets -- and the German giant DaimlerChrysler. But there is at least one company which is not considering a mega-move to improve efficiency. That is the British traditional sports-car company Morgan, which still makes cars by hand in a small country factory and has full order books for years ahead. During production of Morgans, the name of the customer is written onto each individual car.