The Nanjing deal to revive car production at Longbridge continues to pose as many questions than answers. Kevin Gopal asks whether Longbridge can ever be turned into an efficient plant.
Wang Qiu Jing provided more questions than answers when he stood at Longbridge at the end of September and revealed plans to resume car production at the historic site. Around 100,000 cars a year on two assembly lines with 1,200 jobs, said Wang, vice-president of Nanjing Automobile Corporation, which bought MG Rover's assets from the administrators for £353m in July.But as Wang was speaking, a team of engineers was shipping some of the assets back to China, Nanjing's critical tie-up with the GB Sports Car Company had yet to be finalised, and everyone from analysts to union leaders were warning that more money was needed to make the plans viable.
Wang did little to alter the view of some that Nanjing Auto was engaged in a lift-and-shift operation to take the assets back to China. Those who believed Nanjing Auto was genuine still acknowledged the difficulties that lay ahead.
Wang said production could resume at Longbridge by 2007 on two of the three final assembly lines that are to remain in the country along with the site's most recent paintshop. The other assembly line and the Powertrain engine operation will have a new home in China. Four or five new models are being considered for Longbridge while production of the existing MG TF and MG ZT models could resume at the end of next year if engine development progresses smoothly.
But that's not the only "if". Nanjing has invited GB Sports Car Company - the consortium led by former Powertrain managing director Fraser Welford-Winton that bid for Rover's sports car assets - to work with it on making sports cars at Longbridge and the two have yet to agree a combined business plan. Wang said a "top quality, UK-based management team" was essential to Longbridge; he also said that Nanjing would only invest its "share of the joint development cost for future vehicles and engines".
Without a fully committed partner, probably taking the lead management role, and more investment, Nanjing's plans for Longbridge will not come to fruition. Which is why nobody's celebrating.
Transport and General Workers Union officials believe that Nanjing is genuine in its intentions and welcomes any job creation. They continue to meet with Nanjing and are pressing the government for financial assistance for Longbridge. But Nick Paul, whose role as chairman of Advantage West Midlands (AWM) to some extent involves cheerleading for the region, has said that it will be a "difficult task" to resume production at Longbridge.
Rob Hunt from Pricewater houseCoopers, joint administrator for MG Rover, poured further cold water on Nanjing's plans when he was reported as saying that he was "not convinced large-scale manufacturing can be done there".
Dr David Bailey, an auto industry expert at Birmingham Business School, says Nanjing Auto is a small company with limited resources and no experience of developing cars for the market. It has never engaged in research and development and the existing Rover range will be looking old if and when production at Longbridge does resume. With the cost of bringing a new product to the market running at between £3400m and £31bn, and the government constrained on the financial assistance it can offer by European Union state aid rules, he says he is "increasingly sceptical about anything at Longbridge".
Even if car manufacturing does resume at Longbridge "there is a problem of consumption, not of production", says Nick Matthews of the Warwick Manufacturing Group at the University of Warwick. Mainstream car manufacturers have to sell at the volumes of Ford or Toyota to compete effectively and make a return on investment and Rover is "not in the same league," he says.
Part of the problem, says Matthews, is that Longbridge is one of the last of the pre-war car plants in Europe. Rover may have had the tradition of skilled car making labour but it is on new, greenfield sites such as Toyota at Burnaston that real productivity gains have been achieved - even without the tradition of labour skills. Indeed, earlier this month Toyota announced that annual profits at its British factories had tripled to £350.4m. Last year Toyota invested an extra £350m in its UK production business while the company has also made Burnaston a centre for training for European manufacturing.
"Technology and the method of car making have gone through such a revolution that it's almost impossible on an old site," says Matthews.
The presence of Arup Partners as lead business adviser to Nanjing adds credibility to the plans. Arup acted for Nanjing in acquiring the MG Rover assets and has been subsequently retained to develop the business plan and define a new range of products. With its active vehicle design group, it is also in a position to design those vehicles, right down to prototyping and crash testing.
Arup director John Miles insists that Longbridge can be turned into an efficient car making plant once Nanjing has taken some of the assets home and the rest have been reorganised. "Longbridge will necessarily be reconfigured quite substantially," he says. "Nanjing will end up with good-quality kit in a more compact formation."
Miles offers a personal take on the argument over car numbers provoked by Hunt's sceptical comments to the press about the possibility of large-scale manufacturing returning to Longbridge. By large-scale manufacturing, says Miles, Hunt is likely to mean over 200,000 cars a year, a figure never claimed by Nanjing. And when Hunt talks about sports car manufacture being Longbridge's more likely outcome, that could mean a figure as high as 50,000 a year.
Finally, points out Miles, when Nanjing has talked about 100,000 Rovers a year, that could include cars made in China. Consequently, a realistic figure for Longbridge is 80,000 cars a year, which would underpin the claim of 1,200 jobs. "The business plans are sound and very credible," says Miles. "We are not aiming for a pipsqueak 5,000-a-year production but a serious but compact operation."
Any further announcement could be some weeks off, according to Gordon Pountney of GB Sports Car, which wants MG TFs and other sports models at Longbridge to become a new Alfa Romeo. GB Sports Car, which brings a reported £330m to the table, is still discussing its joint venture with Nanjing. As that announcement is awaited, speculation will mount that other investors - possibly from the administrators' list of bidders - are being sought. GB Sports Car doesn't have a plan B.
Pountney says: "Once Nanjing had acquired all the MG Rover assets it was obvious that it was sensible to work with them. We have no other intentions at the moment."
Public sector investment is being sought as well. Both the Department of Trade and Industry and regional development agency AWM confirm that they have been in talks with Nanjing, although will not divulge details. Although the received wisdom is that EU rules prevent state aid to the auto industry, it is not impossible.
Late last year, Ford announced a £3169m investment in its diesel engine manufacturing unit at Dagenham in Essex. The investment is to meet demand for diesel engines resulting from Ford and PSA Peugeot Citroen and was supported by £313m in training packages from the London Development Agency and the Learning and Skills Council and £34.5m from central government via its Selective Finance for Investment in England scheme, which is designed for businesses looking to invest in an assisted area but needing financial assistance to do so.
David Cundy, director of grant advisory services at Ernst & Young in Birmingham, says that state aid isn't precluded for Longbridge but Nanjing would face a number of difficulties in obtaining it. The government is already smarting from accusations that it gave money to MG Rover in its dying days against the advice of the administrators and is unlikely to want to compound that criticism, especially given the scrutiny of the European Commission on assisting the auto industry.
"Given the troubled history of Longbridge the government might be more worried than usual," says Cundy. He also points to another difficulty facing Nanjing. It has to demonstrate it needs the assistance to go ahead with manufacturing at Longbridge.
But given that the government is restricted to funding 6 per cent of the project, any scheme that hangs or falls by a 6 per cent grant looks tenuous anyway. One opportunity, he adds, might be for government assistance in a project that benefits the sector as a whole, so look out perhaps for some sort of centre for auto excellence at Longbridge.
Yet more speculation surrounds Nanjing's intentions for the assets it has transferred to China. Some believe it intends to use them to make engines to sell to Shanghai Automotive, the early front-runner to buy MG Rover. Another suggestion is that Nanjing - which has struggled in recent years, especially with its joint venture with Fiat - has bought MG Rover assets to persuade Shanghai Automotive to buy it.
Certainly a joint Nanjing-Shanghai Automotive bid for Rover would have been more convincing. "The UK government should have been pressing the Chinese government on this because both Nanjing and Shanghai Automotive are both state-owned firms," says Bailey. "There could have been a joint bid and then the economics would have stacked up."
Anthony Glossop, chairman of St Modwen, which owns the Longbridge site, confirms the company has been in talks with Nanjing and that if the car maker comes back with detailed proposals St Modwen is happy to offer it a quotation. "We want to see it succeed as a business because it's the best show in town," says Glossop.
But looking for signs on the ground for Nanjing's intentions reveal little.
Insider has spoken to two former Rover component makers, neither of which have had any approaches to resume supply. Nor does the Engineering Employers Federation (EEF) know of any of its members having received approaches.
"Nanjing Automotive is certainly making all the right noises about restarting production at Longbridge," says Ian Smith, chief executive of EEF West Midlands. "If this is to happen it will require a lot of support from government and organisations within the West Midlands. As far as we are aware none of our members have as yet been contacted by Nanjing to be potential suppliers, but it is early days and EEF West Midlands remains ready to assist in any way we can.
"What is clear is that any production at Longbridge will not employ the amount of people that were there prior to MG Rover's collapse. Therefore it is important for the focus to be on finding work for former employees, rather than taking part in idle speculation as to what might or might not happen at the Longbridge plant."
Meanwhile, the fall-out from MG Rover's collapse appears not to have been as severe as feared, although that's little consolation to those who remain unemployed or have been forced into lower-paid jobs. Forty-five per cent of people laid off at Rover or its suppliers - a total of 2,700 people - have found jobs, says Paul, who leads the Rover Task Force. Over 300 of those have been with manufacturing companies that have registered vacancies. A further 2,000 have started or completed training.
The Rover Task Force's remit runs to the end of the year and Paul says he would like the figure to be 100 per cent, but he is encouraged that the regional economy will be increasingly diversified. The Task Force will be completing an exit report in January that will probably criticise jobseekers' allowance regulations that only allow claimants to train for 16 hours a week before losing benefits.
Paul's preliminary conclusion, however, is that because of the work put into diversifying the regional economy "the West Midlands has been able to withstand this shock infinitely better than it would have in 2000." That view is supported by Paul Melville, recovery and reorganisation partner at Grant Thornton in Birmingham. "One or two suppliers have gone down but not as many as some predicted. A lot of suppliers had seen the writing on the wall and either pulled out or got better terms for working with Rover. And they have been supported by AWM and financiers."
Melville doesn't rule out the possibility of further failures and points out the shakiness of the industry as a whole. But if a wider look at the industry reveals fears such as this, it also shows that Longbridge itself, though symbolically and historically significant, is of only limited significance for the Midlands. The Rover legacy, says Matthews, also includes Land Rover, voted the most improved brand in the US, and Mini, whose models are flying out of showrooms. Arup has expertise at its Midlands base in Solihull while Ricardo, the auto industry consultancy, employs 1,000 graduate engineers in Leamington Spa.
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