Honda breaks ties with Rover

View from City Road: Jilted bride prepares for future without Rover
THE INDEPENDENT

Tokyo, 21 February: BMW man emerges smiling from Honda building, says talks amicable and discussions on Rover to continue for six months. Honda man emerges fuming and says all links with Rover severed. Translator fired? Not exactly. A more likely interpretation is that Honda has expressed its anger by terminating the cross-shareholder arrangement, but it recognises precipitate action could hurt it as badly as Rover. So phased divorce proceedings are in train.

It was inconceivable that the Japanese would happily do nothing in the face of their shoddy treatment by Rover's former owners, British Aerospace. But it was equally inconceivable that a company as commercially minded as Honda would forsake the financial gain it reaps from the partnership - currently some pounds 400m a year - by pulling the rug from under Rover.

However, the 20 per cent cross- shareholding the two companies enjoyed until yesterday was undoubtedly the cement that held the partnership together. Without that, it is difficult to envisage a future. How quickly the relationship will unravel is harder to assess. Despite the bloodcurdling noises from Tokyo yesterday, both Rover and Honda are talking of going ahead with their joint medium- sized saloon, even though the car is not due until next year. Beyond that, they had no plans anyway.

The prospect of Honda withdrawing from Rover in a phased manner to build a more independent operation in Europe dictates an end to technology transfer. Honda will also need its own body panel plant in the UK. But there is no reason Honda should choke off the supply of engines to Rover if it is profitable business. If anything, it is more likely that BMW will decide it can live without Japanese horsepower.

As for the impact on Japanese investment in Britain, the episode tells us little. Rover's ownership has changed, but the factors that attract the Japanese to the UK - language, culture, low labour costs and golf - remain constant .

Divorce will cost both partners dear
MICHAEL HARRISON, Industrial Editor

THE 15 fruitful years of collaboration between Rover and Honda has probably saved the British car maker at least pounds 1bn in model development costs. But the benefits are not solely financial, for the partnership has also brought Rover what money cannot buy - working practices that are the envy of many other Western car makers and Japanese engineering know-how.

Nor have the benefits flowed only one way. Rover has enabled Honda to gain a foothold in the UK and European car markets at a fraction of the cost paid by its two Japanese contemporaries, Nissan and Toyota. Honda also earns pounds 400m in licence fees and component revenues from Rover each year.

Would Honda really throw all that away in a fit of pique simply to exact revenge on BMW and embarrass British Aerospace? And could the Japanese bring Rover to a standstill even if they wanted to? There are three principal areas in which the two car makers collaborate: licensing agreements and joint model development; the sale and purchase of components; and technology transfer.
With the exception of the revamped Rover 800, most of the cars built by Rover are based largely on Honda designs and manufactured under licence from Honda, entirely so in the case of the Rover 400 and 600 series.

Honda says these agreements can be terminated at three months' notice. Rover says the agreements remain in force for as long as it wishes to produce the cars. Honda also licenses Rover to build its PGI gearbox, which goes into all two-litre versions of the 800, 400, 200 and Land Rover Discovery. Rover manufactures the gearboxes at a rate of 1,800 a week at its Longbridge plant in Birmingham. Honda could withdraw this licence.

As for components, the principal collaboration is on engines and body panels. Honda's Swindon plant manufactures 70,000 engines a year for Rover, including the 2.7- litre V6 engine for the Rover 800. It also supplies facias for the 600. Rover in turn produces all the body panels for the Swindon-built Honda Accord at a nearby pressing plant, using tooling supplied by the Japanese.

But it is not only the Rover cars that depend on Honda design expertise. Much of the equipment used to build them at Longbridge and Cowley, from the tooling that cuts the metal and the robots that weld the body shells, to the computer software that runs the production lines, has also been developed and supplied by Honda.

Finally, they operate a common base of component suppliers and a joint database, enabling each company to keep tabs on the 20,000 or so parts that feed their manufacturing plants. Honda may not like the idea of all this Japanese technology falling into the hands of a German competitor. But the cost to it of pulling the rug from under Rover, in both financial and public relations terms, would be enormous.

It is almost certainly a price Honda has no intention of paying, anyway. Yesterday it made no attempt to contradict Rover's assertion that the latest product of their collaboration - a medium-sized car, codenamed Theta by Rover and HH by Honda, which is scheduled to appear in a year - would go ahead as planned.

That apart, however, the two partners are probably headed for divorce. There is no new collaborative model on the drawing board, the two companies having failed to agree on a replacement small car. And there is already speculation that Honda will create the more independent European operation it spoke of yesterday by building its own pressings plant in Swindon.
The key dates in an affair to remember

• December, 1979: Agreement signed to manufacture Honda Ballade-Triumph Acclaim at Cowley.


• April, 1983: Agreement signed for joint development of Rover 800- Honda Legend.


• May, 1985: Honda UK Manufacturing established.


• December, 1986: Contract signed for joint development of Rover 200- Honda Concerto.


• August, 1988: Government sells Rover to British Aerospace.


• April, 1990: Honda and Rover agree 20 per cent cross-shareholding.


• October, 1991: Agreements signed for the two companies to develop Rover 600-Honda Accord, to collaborate on component purchasing and on staff training.


• October, 1992: Production begins at Honda's Swindon car plant.


• October, 1993: Honda agrees to sell Land Rover Discovery in Japan badged as Honda Crossroad.


• January, 1994: BAe sells Rover to BMW.


• February, 1994: Honda terminates the cross-shareholder arrangement with Rover.

The Honda Motor Company said today that it would end its ownership ties with the Rover Group in response to the sale of the British automobile company to BMW. Honda, which had made no secret of the sense of betrayal it felt when the controlling stake in its longtime partner was sold, also hinted that it would end many of its collaborations with Rover and set up a more independent operation in Europe.

The announcement came after a meeting here between Honda's president, Nobuhiko Kawamoto, and BMW's chairman, Bernd Pischetsrieder. Honda owns 20 percent of Rover, and Rover owns 20 percent of Honda's British manufacturing subsidiary. The other 80 percent of Rover had been owned by British Aerospace until it agreed to sell that stake to BMW three weeks ago for about $1.2 billion.

An Outraged Management
While Honda's management had previously expressed outrage over the sale to BMW, which it regards as a competitor, it had not said until today whether it would continue in the relationship with Rover.

BMW officials had expressed some hope that Honda would continue the collaboration, but Honda executives apparently had already made up their minds by the time Mr. Pischetsrieder arrived in Tokyo. "We informed BMW that it is Honda's intention to end our mutual equity holding relationship with the Rover Group,"  Mr. Kawamoto said in a statement issued after the 90-minute meeting.

He said that a variety of collaborative efforts and contracts between Honda and Rover "will be reviewed in future business discussions." He also said that Honda, which had relied on Rover for help in selling cars in Europe, would from now on expand in Europe "using our own resources."

But Honda officials gave no timetable for the moves, suggesting that the relationship would be phased out slowly. It is expected that Honda's 20 percent stake in Rover will be sold to BMW. The two companies have numerous links that have been built over 15 years of cooperation. Honda supplies many engines for Rover cars and has supplied other technology. Rover makes one small automobile sold by Honda in Europe and a sport-utility vehicle sold by Honda in Japan.

"I'm surprised they came down that hard," Enda Clarke, auto analyst with Baring Securities in Tokyo, said of Honda's announcement. He said he thought it would make sense for the companies to continue their cooperation, at least temporarily.

'More Potential Loss'
Jonathan S. Dobson, an analyst with Jardine Fleming Securities in Tokyo, said Honda's move made sense because Honda had nurtured Rover back to health with its know-how, only to see the company fall into the hands of a competitor. "There's far more potential loss in Honda seeing its technology available to BMW than in seeing it available to British Aerospace," Mr. Dobson said.

Honda could greatly disrupt Rover's operations if it abruptly stoped supplying engines to the British company. That, however, could also hurt Honda. But Mr. Dobson said there was much less risk to Honda than to Rover from the unraveling of the relationship. "For Honda it's an inconvenience to have to untangle the shareholding web rather than a strategic disadvantage," he said.