What BMW wanted!

In this, the latest in an occasional series of articles on the BMW-Rover affair, I attempt to answer the question of what BMW wanted when they paid UKP800M for Rover in the first place.

How can BMW have got things so horribly wrong with their involvement with British car maker Rover? Often seen as a key part of the undefeatable might of the German car industry, BMW was brought to its knees by its sorry involvement with Rover. So, what were the mistakes?

First of all, it appears to this writer that BMW bought Rover because there was a sound business case for the purchase of Land Rover and BAe, the then owners of the entire Rover-Land Rover operation wanted to dispose of the whole lot.

Valuing a car company is not an easy process. They are infrequently sold so there is little market and profit and cash flow figures in the car industry are distorted by the massive investment programmes necessary in this business.

At the time of the BMW takeover, the best shot that anyone had at valuing a car business was twenty percent of turnover. On hearing that BMW had paid UKP800M for the complete Rover operation, I carried out some calculations.

First of all, suppose that BMW would take the existing land Rover line up and federalise them for sale in the US. Then, that they would use their own distribution system to sell the Land Rover range in the US and the rest of the world.

Now, if the sale of one vehicle represented a turnover of UKP20,000, then the Land Rover operation was worth UKP4,000 * sales volume. Suppse than that the sales volume could hit 200,000 units then, Land Rover alone would be worth what BMW paid for the whole outfit.

An interesting aspect of all this is that a few months beofre the sell off, Land Rover sales arrived at that level and, of course, in the sell off itself, BMW realised rather more than this by selling out to Ford. The reason for that is that in the interim, car company valuations had been marked up.

An alternative way of looking at this is to ask a simple question:

How much would it cost BMW to develop a range of vehicles similar to the Land Rover line up? Of course, the cost of doing so would be rather more than the price paid for the whole Rover group and the conveniently ignores the marketing cost of achieving a name equivalent to that of land Rover in the off road market.

So, this suggests that the real agenda when BMW bought Rover was to obtain the Land Rover besiness and they picked up the car company for no cost as a bonus.

Future aticles in this series will ask why BMW finally decided to sell Land Rover and what did they actually get wrong wioth Rover cars.

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