M G Rover has been looking east to avoid going west for so long that a degree of cynicism about its latest oriental "salvation" is understandable.
Since the "Phoenix Four" car industry executives acquired the ailing business from BMW for £10 in 2000 there has been a long list of partners and projects, real and imagined, touted as eastern promise of a brighter future.
From Poland to China, from India to Malaysia, and now back to China again, the last British "volume" car maker has repeatedly failed to deliver any real benefit from its oriental adventures.
But what sets the latest new dawn apart is that MG Rover has, for the first time, made it clear that without a deal it is doomed. If Beijing blocks the partnership between Shanghai Automotive Industry Corporation (SAIC) and MG Rover, it will consign the company to the history books.
"The future of the company rests on this deal," John Towers, chairman of Phoenix Venture Holdings, which owns MG Rover, is reported to have told dealers and staff. This echoes the bleak warnings given in the Phoenix accounts last month, where the auditors pointed out that the company could only be treated as a going concern if the talks with SAIC were successfully completed.
But while much of the world's media appeared to conclude over the weekend that the SAIC deal was a Chinese whisper short of a formality, a more detached analysis suggests a less optimistic outlook. It has been said that SAIC is prepared to invest £1bn for a 70% stake in a separate joint venture company, with the deal to be concluded by January. This will spawn a range of new models, the first of which will be ready by mid-2006 and provide a platform for 1m new car sales.
Old technology
This does not square with SAIC's stated ambitions, nor the underlying economic and industrial reality.
SAIC has said publicly it has three strategic goals: to sell 1m vehicles a year; to join the Fortune 500; and to sell 50,000 of its own branded cars by 2007.
With 800,000 vehicle sales in 2003 and a flotation planned for next year, SAIC is on track to meet its first two goals. But to create its own branded marque is more problematic. SAIC already has two long-established and highly successful joint ventures in China with VW and General Motors. But these western giants drive SAIC's sales and own the crucial technology on which a new self-grown model depends.
With such a modest sales target for an own-branded vehicle, SAIC cannot justify a full-blown investment programme. It has the manufacturing capability, and a substantial domestic marketing and distribution presence. It was only missing the technology.
But no longer. SAIC has already paid about £40m, in a binding deal, for access to MG Rover's intellectual property and its Powertrain engines and transmission business. This is old technology, of between six and 12 years ago. The MG Rover know-how needs to be upgraded. But while MG Rover would need to spend billions to develop a new model for European consumption in a mature market, SAIC can adapt it easily for its growing and less demanding domestic market.
The question arises as to why SAIC would want to invest £1bn in a joint venture when it has already secured the technology it needs to meet its short-term strategic goal for £40m.
MG Rover has very little else to offer the Chinese. The last of the Longbridge land was sold last week, the parts business has been sold and the financing arm has been restructured.
Intangible value
All that is left is a car company teetering on the brink of insolvency, with a declining market share, old technology and an ageing product range.
It is estimated that one-third of the value of a car is vested in the quality of its manufacture. MG Rover offers this third in abundance. But another third is ascribed to the sophisticated technology that is central to a modern car's success. Here, MG Rover has fallen behind.
The final third is linked to a car's brand and image. The Mini has an intangible value that makes buyers pay a premium over its manufacturing cost - the Rover 45 does not.
This is an unattractive profile. Even if SAIC was prepared to make the £1bn investment MG Rover thinks is required to fund a new model, there are doubts about the time to complete the project.
Without the marketing muscle or technological expertise required to work with key suppliers on concurrent engineering of the new car, where different segments are developed separately but in tandem, it will take MG Rover/SAIC until 2008 to bring the first new model to market.
That is too late for the Chinese to develop a model that is technologically daunting and offers uncertain volume potential. It is perhaps no surprise then that SAIC denied yesterday that it had a timetable for a deal. MG Rover seems destined to live in interesting times.
