The government’s report into the collapse of MG Rover has just been published. After four years and a cost of £16M, the report tells us little we didn’t already know.
It’s worth looking at a bit of the history of MG Rover.
In 2000, BMW decided to sell Rover. Their preferred buyer was Alchemy Partners, a venture capital company, which planned to turn the company into a niche sports car manufacturer. The plans were credible, and if successful, would have secured the jobs of potentially thousands of the workers at the Longbridge plant in Birmingham. However, the plans did involve several thousand immediate redundancies.
A group of local businessmen founded the Phoenix Consortium to bid for the company. MG Rover had lost billions of pounds over the preceding years. BMW had some of the best management in the automotive industry, with access to massive capital resources, and had not been able to turn MG Rover around. But the Phoenix men did not make clear what major changes they would make that would ensure the company moved into profit.
However, they were promising to retain thousands more workers than Alchemy. For this reason, the government and the trade unions both pushed the deal hard.
In due course, BMW duly sold the company to Phoenix. The price was a token £10, with BMW providing a £400M soft loan to help finance the new business.
The new company burned through cash in the subsequent years, and was unable to find a profitable business formula. It collapsed in 2005 with debts of £1 billion.
The government’s report concentrates on the management of MG Rover over those years, and on the period of the collapse itself. The government should not be blamed for that collapse. After all, the viability of the company had been called into question from the very start, by Jon Moulton of Alchemy, by the media, and by the Conservative opposition.
Therefore the report unsurprisingly makes little criticism of the government. The Phoenix Four called the report a “whitewash” and claimed the real reason for the company’s collapse was that “the government bungled the last chance to save MG Rover”. It is not clear why they believe the collapse was the government’s fault. Lord Mandelson has promised to start proceedings to disqualify the Phoenix directors from being company directors in the future.
However, while the government in my view should not be blamed for the company’s eventual collapse, they certainly played their part in setting it up in the first place. At the time that was but the latest sorry chapter in State interference in the UK motor industry.
The real issue is not whether the Phoenix directors did anything immoral, nor whether the government should have done more to save the company in the end. The real issue is why, in 2000 when MG Rover was created, short term political opportunism was allowed to get in the way of sound commercial judgement, and why the government thought it knew better than the private sector what was the best way to ensure a viable future for the workers of Longbridge.
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