Rover seeks an extra gear

THE BIRMINGHAM Motor Show opened its doors last week to reveal two spanking new British cars: the Jaguar S-Type and the Rover 75. But the razzmatazz rapidly turned into a wake.

On Tuesday, the Rover 75 descended from the exhibition hall roof, serenaded by the London Symphony Orchestra. BMW's chairman, Bernd Pischetsrieder, proclaimed the rebirth of the Rover marque and champagne flowed. In the afternoon, a press conference announced that more jobs were to go at Rover.

On Thursday, excitement over the new Jaguar S-Type was dampened by problems at its parent, Ford, which reported that Dagenham would cut up to eight shifts in November and December, due to slack demand for the Fiesta.

The bad news was not a total surprise, particularly at Rover. As a leading exporter, it had complained about the strong pound cutting into margins on overseas sales. And its market share in Britain continues to decline. Production at Longbridge will be stopped in December because of weak demand for the Rover 200 and 400. These relatively new models are already looking uncompetitive.

Rover is proving a nightmare for BMW, its German parent. After five years' ownership and despite annual investment of pounds 600m, Rover is still loss- making. Deutsche Bank has estimated it could lose pounds 500m this year, though many analysts suggest the true figure is nearer pounds 200m. Whatever the scale of the losses, Rover aims to cut 3,000 jobs from its 39,000 workforce, including 2,400 at Longbridge. These cuts would be in addition to the 1,500 job losses announced earlier in the year.

Tony Woodley of the Transport and General Workers Union said the workforce was "in serious shock". He stressed that nobody doubted the extent of Rover's problems.

Richard Burden, the local MP for the Longbridge plant, said: "If BMW pulled the plug, that would be a catastrophe. The effect would be ripples down the line. It has been estimated that between four and six jobs will be affected for every one at Longbridge."

Longbridge is the largest employer in Birmingham and deemed the largest factory in Britain. It is undergoing a heavy building programme ahead of the launch of the Mini in 2000. It is difficult for BMW to justify spending the pounds 1bn needed to replace the 200 and 400, if Rover continues to lose money.

Before starting talks with the unions, Mr Pischetsrieder blamed low UK productivity for the plight of Rover and claimed there was a 30 per cent productivity gap between Britain and Germany. He said: "The shareholders of BMW can't be prepared to spend money in a business that hasn't a viable output, and therefore the productivity gap has to be closed."

This view seemed to be endorsed by Peter Mandelson, the Trade and Industry Secretary, when he met Mr Pischetsrieder and Walter Hasselkus, head of Rover, to discuss the impending job losses. Mr Mandelson said: There are both immediate decisions to be taken about costs at Longbridge and long- term investment decisions for the company as a whole. Without the immediate problems being solved it will be very difficult for the future to fall into place.''

Even the unions barely disagreed. Roger Lyons, general secretary of the Manufacturing Science and Finance Union, said: "The problems of prod-uctivity in this country are not caused by lazy workers but by an increase of 30 per cent in the value of the pound and a desperate lack of investment in modern plant and training."

In recent months, both the Chancellor, Gordon Brown, and Margaret Beckett, when President of the Board of Trade, have highlighted the dismal productivity of British manufacturing. While Britain does boast world-class engineering companies such as TI, Siebe and Rolls-Royce, the aero-engine maker, others have struggled. For them, the high pound has been particularly tough, leading to predictions last week of a loss of 100,000 jobs in the next year.

The contrast with Germany is stark. Manufacturing industry, which accounts for one third of the German economy, has coped with an appreciating currency for years, not least by raising productivity. During the early 1990s, Britain benefited from an undervalued currency but failed to raise its productivity, so when sterling did strengthen, industry could not cope with the lower prices. Germans enjoy longer holidays, higher pay and a significantly shorter working week than Britons. Yet despite higher wage costs, unit production costs in Germany are generally lower than in Britain.

According to government figures, British workers in the manufacturing sector produce on average around pounds 30,000 of output, compared to over pounds 40,000 per worker in France, Germany and Italy. This means that the worker can be paid more; the average west German earns nearly 40 per cent more than his British counterpart.

Despite decades of restructuring, production in Britain is not even necessarily more flexible than its German equivalent. Thanks to flexible shift patterns, BMW operates its Regensburg plant for 99 hours a week. Because of overtime payments, this would be uneconomic at Rover, although demand for the Land Rover Freelander would justify extending production time at Solihull.

BMW's German workforce has lifelong work accounts, which mean efficient younger workers "save" overtime hours in return for reduced working later in life. And Saturday is treated as part of the normal working week at BMW plants, unlike at Longbridge, where overtime payments double hourly rates. When short-time working is necessary because of slack demand, payments fall accordingly. This would reduce the current losses at Longbridge, which is on a four-day week but five days' pay.

It is not entirely clear where Mr Pischetsrieder's 30 per cent productivity gap applies. It is, however, clear that he is determined to force the unions to accept BMW-style flexibility and agree to cost savings worth at least pounds 150m a year. Then there would be the little problem of creating cars that the consumer actually wants.

However, all is not lost at Rover. Certainly, the Rover 75 looks step in the right direction. Mr Hasselkus says there have been big efficiency gains and quality improvements in recent years. Relatively little new investment has been seen at Longbridge. Both Cowley and Solihull, which have attracted new spending and new models, now enjoy improved productivity. Moreover, German accounting standards, which write off investments over three rather than six years, emphasise the scale of Rover's losses.

New investment and new models are vital to higher prod-uctivity in the car industry - a point underlined on Friday when Volkswagen announced it was injecting pounds 500m into Rolls-Royce Motor Cars. Meanwhile, the Nissan plant in Sunderland is the most productive in Europe: one worker there produces 100 cars a year; a worker at Longbridge, one of the least productive in Europe, assembles 32 cars a year.

If one cannot build on a greenfield site, new models are the next best thing. Sharing design features across models, integrating suppliers into the assembly process, and designing for easier assembly and higher quality are standard ways of raising productivity.

The revived fortunes of Jaguar proves that the trick can be pulled off in Britain. Customer satisfaction surveys now rank the Jaguar XJ series saloon and the XK sports car among the best in the world. This has given Ford confidence to back Jaguar and take on Mercedes, BMW and Audi in the compact executive car class.

Nick Sheele, Jaguar's chairman, said: "The new S-Type represents the first stage of a dramatic product-led expansion of the company over the next four years. This will fuel a four-fold rise in Jaguar sales from 50,000 cars this year to over 200,000 by 2002, firmly establishing Jaguar as a leading player in the world's premium car market."

While the new S-Type was designed and developed in Coventry, it draws extensively on Ford's expertise. The car shares its platform with the new Lincoln LS, and the cylinder block of its V6 engine is derived from Ford. It is being assembled on a new production line at Castle Bromwich in Birmingham, which has benefited from one of the largest UK inner-city investments for 50 years. Here, S-Type bodies are constructed, painted and assembled, and components are delivered just-in-time to the production track.

The specification of the S-Type suggests Jaguar may have a winner. Ford certainly thinks so. This may come as little consolation to BMW. After a decade of heavy investment, Ford seems to have created a worthy British competitor to the Bavarian car company.