How John Towers can save Rover
Jack Yan provides his
view on how the Phoenix consortium could save Britain’s last
volume automobile manufacturer in the short term, using a low-cost
marketing strategy and attaining a sport-luxury-innovation positioning
THE RELIEF at Longbridge could be felt miles away. Jon Moulton
and his venture capitalist partners at Alchemy were out of the
picture and John Towers, the CEO of Rover at the time of the
BMW acquisition in 1994, and his Phoenix consortium had secured
the future of Rover and the majority of its workers by paying
a nominal £10.
But the British press is wondering: what now?
Logically, to us at CAP, there are only a few ways Towers
can proceed. The British press is unduly pessimistic but if
Towers can redefine the once-proud manufacturer correctly, then
the two-year return to profit promised by the former Rover boss
is realistic. Our recommendations involve following the American
reintroduction plan of MG to America proposed by Moulton and
pressing ahead with Towers’ idea of injecting Rover with a new,
imaginative brand personality. Here, we detail how.
First, let’s examine the deal. BMW was losing £2M daily at Rover
through production and other associated costs, although this
figure was flatly rejected by Towers. Towers and his colleagues
at Phoenix, a group of Midlands businessmen, got a viable business
plan up and began serious negotiations with BMW only in early
May. By May 10, they had finalized the deal. This was no doubt
helped by Towers’ knowledge of the company—despite a five-year
absence from Rover, he understood it well.
BMW will loan the company £500 million and
Phoenix has also received a loan of £200 million from an obscure
North Carolina bank. Insiders point at further funds being available.
BMW is wiping Rover’s accumulated debts but these will be replaced
by the £700 million. Towers says that 1,000 of Rover’s 8,500
workers will be made redundant, whereas Alchemy had planned
to halve the workforce.
Not included in the deal are the new Mini,
to be launched by BMW this year, the Triumph and Riley nameplates—surely
the most valuable out of Rover’s ancestral brands, but BMW said
that the deal would be broken if Towers had insisted, he says—and
the Land Rover line, which has been sold to Ford. The Longbridge
plant is the only one in the deal; BMW retains the old Morris
plant at Cowley, which will make the Rover 75 until production
shifts to Longbridge.
What we know
We know that Phoenix will fund the redundancies from the BMW
loan. The Rover 75 estate, which has been finalized in most
respects, will soon be launched. And Towers has announced that
there will be a new approach through marketing, creating a more
emotional and sportier appeal to Rover’s product line.
We also know that given the economics of modern
car production, the £700 million that is publicly known is insufficient
to finance producing 200,000 cars annually. BMW had lost £750
million in 1999 at Rover.
What we think
The figures seem gloomy but economists and marketers will never
see eye-to-eye. The economists JY&A executives (at CAP’s
parent company) would have only the lowest-cost producers making
cars and we would all drive Hyundais, Daewoos and anything the
Chinese could turn out. The reality is that marketing and appeal
sell cars in a joint effort with economic sense. Without going
into detail, we believe it’s possible for Phoenix to build 200,000
cars—but this depends on clever marketing to get them shifted.
A marketing student will probably point to BMW’s lack of definition
for the Rover brand as being the primary purpose of the company’s
failure, not the strong British pound or the weak euro. And
that is what we address.
Rover is hampered, as shown in one episode
of the BBC’s Top Gear prior to the BMW sale, by a home-country
image of being an "old man’s car". Even during the
Towers years, Rover had perpetuated this image: its 600 and
800 models had a dowdy, ministerial image; its 400 was a typical,
dull compact (based on the Honda Civic, it was difficult for
it to be anything more). But we were beginning to see a change
at Rover: Towers was CEO at the time the Rover 200 (now 25)
was launched with its more youthful appeal, and Rover had been
trusting enough to give the exterior design responsibility to
a 20-something—the very demographic it sought. The MGF and the
Land Rover Freelander, two other youthful Rover Group designs,
were developed. Now could be the time to see whether Towers’
mid-1990s strategy of endowing Rover with more than just Hyacinth
Bucket mannerisms will work.
But anyone knows change is necessary, so what
can be done?
First, the new CEO to be appointed by Phoenix—this
is to happen any day now—must understand that this is a short-term
solution pending a proper alliance with a company like Honda,
Rover’s former partner. Rover’s lame-duck image won’t help negotiations
and some sources believe Honda feels its fingers have been burned
(the Japanese company itself has announced that it prefers to
stay independent, unlike Nissan [tying up with Renault] and
Mitsubishi Motors [DaimlerChrysler]).
Given that that’s the case, Rover will need
to begin a strong programme of differentiation to mark itself
out. BMW has already begun that work by competitively pricing
the 25, 45 and 75. If it were not for the sale we believe 2000
would have been BMW’s last big loss-making year with the British
firm. We projected another loss-making year for 2001, but nowhere
nearly as heavily.
This pricing, however, is not enough, because
the Rover brand still stands for little. Its name is still synonymous,
at least in its home country, with the upper-middle class. Abroad,
the Rover brand does not suffer as much and BMW had done a great
deal to improve its profile and dealer network in Europe. In
the early 1990s, few in Germany had even heard of Rover. At
one point its profile had arrived at an all-time high.
How to differentiate? The luxury, British
BMW route has been followed without much success by both BMW
(its advertising reflects a stereotypical Britain) and during
the Towers years (in 1994, Rover
relaunched the 14-year-old Austin Mini Metro as the home-market
Rover 100). The sports-luxury sector is where BMW itself lies—but
this makes instinctive sense. The heritage of Rover’s P5 Coupé
and the P6 3500 V8 pointed at a performance edge for the pushy
executive of the 1960s. Today’s equivalent surely would be the
Generation X interested in a high-performance yet affordable
Rover will not compete with BMW. Its 75 may
compete with the 3-series but it is targeted more as a volume
seller than a specialist car. The 25 has a sporty stance. The
new 35 has been developed with a similar flavour and even the
45 V6 hints at the P6 3500 idea. It seems to be the safest route
to follow because the developmental work has been done. In short,
Rover won’t have to lie to the public about the sports-luxury
edge. Alchemy’s plan to badge-engineer Rover passenger cars
with the more overtly sporting MG brand would have been tantamount
to fooling the public. More importantly for cash-strapped Phoenix,
the new route for Rover, perhaps without the British stereotype
and aristocratic ambition, the sports-luxury edge can be achieved
cheaply without a great revamp of its dealer branding.
This is more the territory for the Triumph
brand, though. BMW’s insistent holding on to the name gives
rise to much speculation. While BMW has been weakened, we cannot
dismiss the development of Triumph, for the same was rumoured
in BMW’s München HQ in early March. Thus, Rover will need
to have an additional "edge" to the sports-luxury
positioning. As explained below, this edge has to be innovation.
This is not to say Moulton’s plan was poor. Jon Moulton, of
Alchemy Partners, had run Rover’s marketing department. He was
aware of the huge affection in the United States for the MG
brand. So his plan to reintroduce the octagonal badge to the
cohorts of American enthusiasts had a great deal of merit. It
made sense: MG grew because of America and MG can still grow
because of America.
This, we submit, is one of the golden opportunities
that Phoenix and the Longbridge workers have. But it will be
Rover has been sent packing from America a
few times. MG, Triumph and Rover left the United States because
of poor quality: the last car to be sold with the Rover nameplate
in the US, the SD1, gained such a bad reputation for it. The
MG cars being sold in the late 1970s were designs developed
by the British Motor Corporation in the 1950s and 1960s. Triumph’s
TR7 and TR8 sports cars suffered from the same complaint: Consumer
Guide had it right when it noted in 1981 that there will
always be a Britain, but given the quality of the TR8, there
might not always be a British auto industry.
Rover’s last foray was the Sterling brand
of the 1980s. It showed that even a cash-strapped company could
launch a new brand, but the car was a flop. It scored very poorly
in the J. D. Power & Associates annual surveys and before
long Sterlings could be seen outside Acura back lots being used
for spares (it shared a floorpan with the Acura Legend).
While Land Rover and Range Rover had been
successful in entering the US, Rover no longer has these. But
it could build on the lessons learned in creating the brands.
Surely anyone examining a 75 close-up will
see the quality: it is a well-made automobile and BMW and Rover’s
factory workers deserve every bit of the credit. Reintroducing
MG may well be an easy route given that the quality is right
these days. The MGF is a few seasons old and not as competitive
to American buyers alongside newer offerings such as the Honda
S2000, but the mid-engined layout and smart styling will find
appeal amongst the buyers who have gone retro with Volkswagen’s
Beetle and Jaguar S-type. Most importantly, the brand evokes
positive feelings, even amongst those who bought the last of
British Leyland’s ill-fated MGBs.
Rover 25 3- and 5-door subcompact
Rover 45 4- and 5-door compact, based on 1994 Honda Civic
Rover 75 saloon and estate
MGF sports car
Rover’s car line under Phoenix will be tiny, smaller than that
of other European manufacturers such as Peugeot (which has a
relatively small line, too). By the end of the year, we are
looking at the following models:
We believe Rover has inherited the Rover 35 compact,
an advanced design developed by BMW to take on Volkswagen’s
Golf. This is set to be one of the most well developed cars
on the market and will help the company in the volume sector.
But there are huge gaps. Rover needs to
capitalize on the junior MPV sector started by the
first production minivan of recent times, the Nissan Prairie.
This sector is huge in Europe and a Rover MPV on the 35/55
platform is sorely needed. A small SUV based on the
35 could be another option, but its potential against the
Land Rover Freelander may see a repeat of the days when BMC
developed the Austin Gypsy to compete with the original Land
A small sports car on the 35 platform
would be a proper successor to the old 200 coupé, and
it could spawn a convertible—which rivals GM, Ford, Volkswagen
don’t have. This way, Rover would compete with the outgoing
Fiat Punto cabriolet.
In 1995, Rover showed the Mini
Spiritual, a revolutionary and spacious supermini-sector
automobile that BMW said it wouldn’t build. This rear-wheel-drive,
mid-engined supermini possessed what would be class-leading
interior room. Instead, BMW went for the retro-styled (but
still advanced) 2001 model year Mini Minor and Mini Cooper.
But any struggling company needs a revolution
or huge innovation to help its cause. With a huge percentage
of European buyers opting for one-litre cars (DaimlerChrysler
is already developing one in a JV with Hyundai) and space
efficiency (the Mercedes-Benz A-class, Audi A2, Chrysler Java
and Daewoo Matiz being examples of this style) this is a niche
Rover must seek at all costs. The Mini Spiritual’s styling
is right for 20023, builds on Mini styling elements,
is as revolutionary as the original Mini in 1959, and could
be a world-beater. It's about time Rover got the Mini
replacement right, having missed out with the BMC 9X and the
A strong web push should be a low-cost way
to increase public confidence. Buyers flock to the web to
research new models and Rover’s own presence is not as visible
as, say, General Motors’. Build your own Mini Spiritual. Or
use the web for clinicking or consumer surveys over the design
of the new Mini and let the public have a hand in creating
the carhow much more revolutionary can a company
get, and stir up international public support?
The web seems to be a quick way to increase
differentiation and, along with the 35 and 75 estate, endow
Rover with a reputation for being innovators in the sports-luxury
field. It would not be out of place, for Rover was known as
an innovator in the 1950s and 1960s, with its experimental
gas turbine car and the cupholders in the 1960s P5 model.
Jack Yan is editor of CAP and the
chief executive of Jack Yan &
Associates. He holds a master's degree in marketing, specializing
in identity, branding and business performance and has regularly
observed the automotive industry. He can be reached via the
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