Rover can't find the right road

BUSINESS WEEK
ROVER CAN'T FIND THE RIGHT ROAD
The sudden exit of its CEO highlights BMW's impatience

So much for smooth succession. Officials at German carmaker BMW were caught sleeping at the wheel in late April when John Towers, CEO of Rover Group Ltd., its struggling British subsidiary, suddenly announced his departure. It could take weeks or months to choose his successor.

Neither Towers nor BMW execs will comment on his exit. But industry sources say that two years after buying Rover from British Aerospace for $1.2 billion, BMW is unhappy with its pace of change and wants to exert more control. Wolfgang Reitzle, BMW's research and development chief, who became Rover's chairman seven months ago, is launching a major makeover. "Only now is work really beginning to restructure Rover," says a source close to BMW.

Critics say this shakeup is overdue. Rover lost $237 million last year, after earning just $27 million in 1994. In the past two years, the company has added 6,000 new workers, eroding productivity. And two new cars, the $15,000 model 200 and $18,700 model 400, have elicited yawns in showrooms. Says John Lawson, analyst at Salomon Brothers International Ltd.: "[BMW] has been pussyfooting."

Now Reitzle must strike a delicate balance. He must slash Rover's costs but also maintain its British image. So while safeguarding Rover's styling, Reitzle must integrate the company more closely with BMW, analysts say. That means sharing major components such as engines and transmissions. To preserve Rover's British identity, BMW officials are also searching for a Briton to replace Towers rather than a German executive. They fear British consumers might resent heavy-handed German management influence.

Such squeamishness better not distract BMW for long, however. It pumped nearly $800 million into Rover last year for product development and is putting in just as much this year. Only with a firmer hand on the wheel is BMW likely to see that investment pay off soon.

By David Woodruff in Bonn, with Julia Flynn in London