BMW finally makes up mind to sell off Rover

BMW finally makes up mind to sell off Rover
ROBERT L SIMISON & SCOTT MILLER

MUNICH, MAR 15: After pouring billions of dollars into its unprofitable Rover Group Ltd unit, Bayerische Motoren Werke AG may be prepared to pull the plug, at least on the unit's car operations.

The Munich, Germany, auto-maker acknowledged that selling Rover Cars is among the options BMW management has been considering for restructuring Rover Group. The British Rover Group also includes Land Rover utility vehicles and Mini subcompact cars.

Conceived as a move to give BMW the economies of scale it would need to compete with emerging automotive super groups, the $1.2 billion 1994 purchase of Rover Group has instead threatened to drag down the proud Bavarian maker of "the ultimate driving machines." Since buying the group, BMW has invested a further $3.4 billion in updating Rover's operations and products, and it had slated further outlays of $5.3 billion over the next five years.

Management's failure to fix Rover's problems more quickly led to the resignation under pressure of former Management Board chairman Bernd Pischetsrieder in February 1999, followed by his heir-apparent, Wolfgang Reitzle, who failed to secure support of the supervisory board.

In October 1998, after taking a hands-off approach during the first few years of its ownership, BMW realized Rover was facing serious problems. It sent in a 100-person rescue team from Munich, which found so many problems with a new sedan, the Rover 75, that the vehicle's launch was delayed six months until mid-1999.

This resulted in a complete overhaul of the Rover car lineup last year, including the introduction in the fall of the new Rover 25 and 45, replacing the old 200 and 400, which were based on designs developed in a previous partnership with Honda Motor Co. The new vehicles haven't been particularly well received.

BMW executives earlier this month in interviews at the Geneva auto show were insisting that the Rover car products now measured up to BMW standards and establishing them in the market was only a matter of time. And they were sticking with forecasts that they would have the unit at breakeven by 2002.

Heinrich Heitmann, the BMW management board member in charge of sales and marketing, acknowledged that "bringing out three new models in 12 months was not cleverly planned; we would never have done that with BMW." But he maintained that he was now in a position to effectively market the cars. "The quality of these cars," he said, "will convince the public that Rover is a strong brand."

BMW said its management board will present its decision to the company's supervisory board at a meeting Thursday. Company spokesmen wouldn't say what the decision is, but until now senior executives have adamantly declared their determination to turn the Rover car operation around.

The fact that disposing of the car unit is on the table came in a statement issued in response to a report in the influential German newspaper Sueddeutsche Zeitung. The paper reported that BMW management would recommend the sale of the Rover car operations, a factory in Longbridge, England, and the Rover name to a buyer that is "not one of the established auto groups."

An individual close to the company said other options management has weighed include sticking with the current turnaround plan or taking even more steps to cut costs and streamline operations. BMW is expected to report later this month that Rover Group losses for 1999 widened to at least DM 2.5 billion ($1.23 billion or 1.27 billion euros) from DM 1.87 billion in 1998.

In its statement, BMW said its management board "has been working on different scenarios to restructure the Rover Group" and called selling the car portion of the business "just one of the conceivable variants." The company said management would disclose its decision after the supervisory board meeting.

According to the Sueddeutsche Zeitung report, BMW would retain the popular and profitble Land Rover perations as well as the famous Mini. Land Rover's luxurious, boxy sport-utility vehicles have profited from the boom in that segment, particularly in the US BMW has laid plans to bring back a new version of the Mini in 2001. In the US, the Mini would be sold through BMW stores.