MG Rover to Build Cars in China

AP reported that the MG Rover Group Ltd. has formed a joint venture to build cars in China, barely two years after losing so much money that its previous owner, Germany's BMW, gave it away.

MG Rover and China Brilliance Industrial Holdings said Thursday they have agreed to take equal shares in the venture, which will finance, develop, manufacture and export a new medium-sized car and, later, a smaller model.

The deal to manufacture cars for worldwide export is a major step forward for MG Rover, sold by BMW in 2000 for a token 10 pounds ($14) to a group of British businessmen.

Rover had been looking for a partner that could help it compete against much larger rivals. China Brilliance has cooperated with several other carmakers -- including General Motors Corp. , Renault SA and Toyota Motors Corp. -- and generates annual sales of about $2.8 billion.

MG Rover is Britain's last independent manufacturer of cars for the mass market. Known until 2000 as Rover, it proved a sinkhole for $4.1 billion in investment by BMW, which unloaded it that May.

MG Rover has since narrowed its losses and expects to break even next year. Its annual sales are about 2 billion pounds ($2.8 billion).

Both MG Rover and China Brilliance said their alliance creates the scope for a greater global reach and scale of production.

"We have so much in common," MG Rover chief executive Kevin Howe said. "Brilliance has achieved quite outstanding results in a very short space of time and demonstrates world class standards in everything it does. It is clearly the leading automotive manufacturer in the world's fastest growing car market."

Howe's counterpart at CBIH, Brian X. Sun, said the companies shared a similar philosophy, ambition and operating style. By combining their resources, they'd be able to increase their purchasing power for components and cut the unit costs of developing new models by spreading them across bigger volumes.

"Together we will be a force to be respected in the automotive industry," Sun said.

Cardiff University Business School professor Garel Rhys sounded similarly optimistic.

"If what they say here is actually put into place, it's very good news indeed," said Rhys, director of Cardiff's center for automotive industry research. "This probably is about the most thoroughgoing joint venture that the motor industry has seen ... In effect, it's a functional merger."

For MG Rover, the venture represents the next stage of its effort to creep back from the brink of collapse. "It means you now have a credible product lineup and long-term strategy," Rhys said.

CBIH currently focuses on producing a minivan based on the Toyota Hiace but aims to expand into making sedans for the Chinese market. It also is developing a new line of engines together with FEV of Germany, a project that Rhys said could save MG Rover a lot of money.

Under their agreement, CBIH would export jointly produced vehicles to most of Asia and Africa, while MG Rover would have rights to sell them in the rest of the world. The partners said they would consider sharing the U.S. market.

Rhys argued that MG Rover was unlikely to shift production to China from its plant at Longbridge near Birmingham, central England, just to take advantage of China's lower production costs. Output at Longbridge, currently at more than 150,000 vehicles a year, could even increase if overseas sales grow as the two partners predict.