As Rover Struggles, BMW Gets Black Eye

NEW YORK TIMES
By WILLIAM DIEM

THE recent turmoil at BMW, where the top two executives were removed last week, fanning takeover rumors, has a simple explanation. Rover Group, the British maker of cars and off-road vehicles that BMW adopted in 1994, has proved to be a needy, dependent child that demands an ever-bigger allowance and shows no sign that it can soon support itself.

Thus, the ouster of BMW's chairman, Bernd Pischetsrieder, and the resignation of his deputy, Walter Reitzle, reflects the board's judgment that Rover was given too much freedom. Mr. Pischetsrieder had orchestrated the Rover takeover and invested nearly $6 billion to modernize the company and expand its lineup. Rover is thought to have lost more than $500 million last year.

Rover is struggling for several reasons. The brand image of its cars -- which are sold globally except in North America -- is indistinct. Nor did it contribute as much engineering prowess as BMW thought it would, undermining the new parent's strategy to elevate Rover's image.

Compounding the problems is the strength of the British pound, which makes exports expensive and lets importers reduce prices without cutting profits.

''Unfortunately for Rover, the speed with which the values of currency changed exposed problems Rover had not yet overcome,'' the new German president of Rover, Werner Samann, said at the recent introduction of the Rover 75 sedan, which is to go on sale in Europe in June for about $26,000. ''Rover was still too inflexible, unable to react quickly enough, and had not fully established its brand strengths in the market.''

Land Rover, the sport utility division, does not have the same problems. Production was a record 142,000 vehicles last year, including 50,000 units of the new, compact Freelander. And last fall, Land Rover redesigned its midrange Discovery.

But while Land Rover has a strong brand image -- reinforced by its vehicles' appearance in wildlife documentaries and the company's popular off-road driving schools -- Rover's cars have a blurred image. ''Rover stood for putting the Rover badge, leather and slabs of wood on Honda cars,'' said Peter Schmidt, an analyst with Automotive Industry Data in Tamworth, England.

The Honda Motor Company owned 20 percent of Rover when BMW bought the rest from British Aerospace in 1994. Most current Rovers are based on Honda platforms, and those roots have stymied efforts to burnish the brand's image, said Rover's chief spokesman, Bernard Carey. ''We're trying to find a position for the Rover brand that is justifiable in the metal,'' he said. ''With the Rover 75, that's what we're doing.''

BMW wants to reposition Rover as a premium line of front-wheel-drive cars, to complement BMW's stature as premium rear-drive cars. That is more difficult in Britain, Mr. Carey said, because ''Rover is the successor of Austin-Morris,'' mass-market producers that gained a reputation for poor quality. He added, ''We've had to pull out of a mass-market image.''

In Britain, Rovers are often seen as company cars provided by employers. ''The perception of Rover is worse at home than it is abroad,'' said Simon Miller, an analyst in London for Credit Lyonnais, the French bank. ''They depreciate like crazy.''

Sales in Britain fell 23 percent last year, to 152,734, and its market share dropped to 6.8 percent from 8.6 percent. Some analysts suggest that BMW's only way out is to sell Rover or find a partner to share in development of front-wheel-drive platforms, but Rover disputes the need for help. ''Anybody who has driven the 75 will know that Rover is capable, with BMW's help, of designing and engineering some of the best cars in the world,'' Mr. Carey said.

But analysts are not alone in believing that Rover's engineering resources are strained. Noel Goutard, chairman of Valeo, an auto supplier based here, said after his financial press conference in January that Rover's biggest problem was a shortage of engineers. Indeed, in January, Land Rover tried to recruit 150 engineers in Britain and received only 20 applications. A year earlier, Rover had 1,400 applications for 100 positions, but hired only 50 engineers.

Not recognizing Rover's engineering weakness was a fundamental error by BMW, some analysts say. BMW should ''fire the entire old crew, because an old dog doesn't learn new tricks,'' Mr. Schmidt said.