The Rover affair

Amidst all of the shenanigans surrounding Rover, there is an awful lot of confusion and misinformation. It is clear that most of those reporting the affair have little comprehension of the financial issues involved. Also, many of the people trying to "save the company" have a similarly limited grasp. This is sad. Here are my comments on the matter.

First of all, how can Rover be run at a profit if BMW were losing two million a day? The answer is quite simple and you just need to understand what it costs to make a motorcar. One of the largest single items is the cost of designing the car and constructing the tooling and production facilities for it.

Of course, I am not privvy to the Rover figures but I would guess that a figure of one and a half to two thousand pounds per car is about right. BMW have to account for this because they have spent the money and because they must also find the money to spend on replacement models. But, just suppose that you want to run the company without developing new models. You no longer need to worry about that cost and so, you can make a profit on exactly the same sales and prices as BMW were making a loss!

Now, consider the fact that Phoenix have not taken on the old Rover design department. They have only taken the Longbridge plant. They do not even have the ability to update the current models let along design new ones.

So, my conclusion is that Rover can continue to make cars at the rate proposed by Phoenix at a profit for just as long as those cars can be sold. Of coruse, eventually they will lose their appeal to the public because they will be outclassed. Furthermore, they may well be forced out simply because changes in legislation mean that they are no longer legal.

Essentially, the Phoenix deal can prolong the agony of Rover for about five years. After that, it's time to turn out the lights and say goodnight.

In my next item on this subject, I will ask the question of whether there might be a future for Rover in some form. That should be available on the first of June.

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